What Is a Stablecoin?

• January 6, 2026
• Benjamin Richard
• Blog

Have you heard of stablecoins, but you’re not sure what they are? You’ve come to the right place. In this article, we’ll explain what are stablecoins, how they work, and their features and benefits. We’ll also cover stablecoin as digital money and stablecoins in the Malaysian market.

What Is a Stablecoin?

A stablecoin is a digital token created to maintain a stable value by being pegged to a reference asset. Most commonly, that reference asset is a fiat currency, such as the US Dollar (USD) or the Malaysian Ringgit (MYR).

Each unit of a stablecoin is structured to track the value of one unit of the referenced asset. This design removes the price volatility typically associated with cryptocurrencies and allows stablecoins to function as a dependable medium of exchange and store of value in digital environments.

Stablecoins exist purely in digital form and are issued on programmable platforms. Rather than being physical cash equivalents, they represent a digital claim on underlying assets held or managed by the issuer.

Stablecoins and Other Forms of Digital Money

Stablecoins often coexist with tokenised bank deposits rather than replacing them.

They are transferable digital tokens designed to move across compatible platforms and applications. Tokenised bank deposits, by contrast, represent money held directly within banking systems and remain closely tied to existing account structures.

Both can support digital settlement, but stablecoins typically prioritise interoperability and programmability, while tokenised deposits focus on continuity with traditional banking infrastructure.

Within tokenised financial ecosystems, stablecoins commonly act as the settlement layer. They allow payments and asset transfers to occur on the same platform and can enable near-instant settlement through programmable rules. This coordination across assets and applications is a key reason stablecoins are central to tokenised system design.

What Are The Types of Stablecoins?

Stablecoins are not issued under a single, uniform structure. Different design approaches exist to determine how a stablecoin maintains its reference value and how it is supported within a digital system. These differences affect how stablecoins are issued, managed, and used across various financial and technological environments.

Fiat-Backed Stablecoins

The most widely used model is the fiat-backed stablecoin. Under this structure, stablecoins are issued by an entity that holds reserves equal to the total value of tokens in circulation.

These reserves usually consist of cash deposits and highly liquid government securities. The intention is that each stablecoin issued is supported by an equivalent amount of real-world assets, allowing users to rely on the token’s value remaining close to its peg.

This model is used by major global issuers such as Circle, whose stablecoins are designed for payment, settlement, and financial infrastructure use rather than speculative trading. Price stability ultimately depends on the issuer’s governance, reserve quality, and transparency.

Non-Fiat Pegs

Not all stablecoins are pegged to national currencies. Some reference assets such as gold or other commodities.

In these cases, the stablecoin’s value tracks the underlying asset rather than a fiat currency. This allows users to hold and transfer exposure to real-world assets in digital form, while still benefiting from the transactional efficiency of programmable platforms.

Stablecoins as Tokenised Money

Stablecoins are a form of tokenised money. Tokenisation refers to representing assets or claims digitally on programmable systems.

With stablecoins, money itself is tokenised. This means payments can be executed digitally alongside tokenised assets, allowing both the asset and the settlement to occur within the same system. In practice, this enables end-to-end digital transaction flows that are difficult to achieve with traditional financial infrastructure.

How Do Stablecoins Work?

At a functional level, stablecoins rely on digital systems that are designed to move value directly between participants without relying on traditional payment rails. These systems define how transactions are initiated, validated, and completed within a shared digital environment. Here are the main features of stablecoins.

Atomic Settlement

Atomic settlement means that payment and asset transfer occur simultaneously. Rather than one party paying first and waiting for delivery, both actions are completed together as a single transaction.

This structure reduces settlement risk and delays. While its effectiveness depends on system design, when implemented properly, atomic settlement simplifies workflows and lowers operational friction in financial transactions.

Programmability

Stablecoins can be embedded with rules that automatically execute actions when specific conditions are met. For example, payments can be triggered on delivery confirmation, at scheduled intervals, or when contractual milestones are reached.

This programmability allows financial processes to move from manual handling to automated execution, improving efficiency while maintaining consistency within defined system rules.

Composability

Composability refers to the ability of stablecoins to work seamlessly with other tokenised assets and digital applications on the same platform. Instead of operating in isolation, stablecoins can be connected to multiple smart contracts that coordinate payments, asset transfers, and rules in a single, automated flow.

For example, a payment using a stablecoin can be designed to automatically trigger compliance checks before it is completed. Know-Your-Customer (KYC) and Anti-Money Laundering (AML) processes can function as built-in compliance modules that verify user identities and transaction legitimacy as part of the payment itself.

Additional regulatory control layers can also be integrated in the same way. These may include sanctions screening, travel rule data sharing, or other regulatory requirements that must be satisfied before funds move. Each control operates as a connected component within the overall transaction, rather than as a separate manual process.

By linking payments, assets, and compliance logic together, composability allows stablecoins to support complex financial use cases while remaining efficient, transparent, and regulation-ready.

Real-World Benefits Enabled by Stablecoins

Stablecoins can significantly improve efficiency in financial operations. Settlement can occur much faster than traditional multi-day clearing cycles, depending on the platform and regulatory setup. Automation reduces manual processing. And in some tokenised arrangements, the need to pre-position funds across multiple intermediaries is reduced.

They also support wider access to digital financial systems. Stablecoins can be used in fractional amounts, enabling smaller transaction sizes and participation in tokenised financial products. Because they are created for digital use, they can work with software that automates payments and processes.

Transparency is another key benefit. Transactions are recorded in real time on shared digital ledgers, creating a consistent and auditable record of activity. This supports monitoring, reconciliation, and oversight across the transaction lifecycle.

Closing Thoughts

Stablecoins are not just digital versions of money. They function as infrastructure components that enable faster settlement, programmable financial logic, and integration with tokenised assets.

As tokenisation expands across payments, trade finance, and capital markets, stablecoins are expected to play a central role in how value moves digitally. Understanding what a stablecoin is provides a foundation for understanding the future of digital money, both globally and within Malaysia’s evolving financial ecosystem.

Want to learn more? Then check out our other articles or visit zetrix.com

• Cryptocurrency
• Stablecoin
• Web3