Stable-Value Tokens vs. Stablecoins — What's the Difference?

While stablecoins are algorithmic or collateralized cryptocurrencies pegged to fiat, stable-value tokens are blockchain representations of regulated financial instruments designed for institutional settlement. On the surface, both maintain a stable price relative to the dollar. But the difference in their structure, custody, and regulatory treatment is profound—and it determines which institutions can use them.

For institutional investors, the distinction is not semantic. It's the difference between a trading tool and a settlement infrastructure.

Collateral and Backing: Reserve Requirements vs. Actual Assets

Stablecoins maintain their peg through mechanisms. USDC, the largest regulated stablecoin, is backed by US dollar reserves held in bank accounts. For every USDC token in circulation, Circle (the issuer) claims to hold one dollar in a bank somewhere. This is reserve backing—the issuer commits capital and holds it as collateral.

But reserve backing has limits. If the bank fails, USDC holders face counterparty risk. If the issuer decides not to honor the reserve commitment, they can default. The stablecoin is only as secure as the issuer's reputation and the banking relationship supporting it.

Stable-value tokens work differently. Instead of being backed by reserves, they are representations of actual financial instruments. A stable-value token backed by US Treasuries is literally a claim on a US Treasury security held in custody. The underlying asset is not a reserve—it's the actual bond, held in a vault, audited regularly, insured. The token doesn't just represent value; it represents a specific, regulated financial instrument with legal claims attached.

This distinction matters enormously for institutions. With a stablecoin, an institution is trusting the issuer's reserve management and banking relationships. With a stable-value token, an institution is trusting the regulated asset and the custodian that holds it. The latter is far more aligned with how institutional finance operates.

Regulatory Treatment: Payment Instruments vs. Regulated Assets

Regulators treat stablecoins and stable-value tokens as fundamentally different products.

Stablecoins are classified as payment instruments or crypto assets. The regulatory framework is still emerging. In the United States, the SEC and Federal Reserve are debating whether stablecoins require special licensing, reserve requirements, and restrictions. In the European Union, the MiCA regulation treats stablecoins as "crypto-assets" and imposes reserve requirements, but explicitly distinguishes them from tokenized traditional assets. Some countries have proposed restrictions on stablecoin issuance entirely.

Stable-value tokens are classified as tokenized securities or tokenized assets. They fall under existing asset regulation. A tokenized Treasury is treated like a Treasury. A tokenized bond is treated like a bond. The regulatory framework is not emerging—it already exists. The custodian must comply with custody regulation (SEC Rule 17a-3 in the US, MiCA in Europe), and the asset must comply with its own regulatory framework (Treasury regulations, bond prospectuses, etc.).

For institutions, this is critical. Regulators may crack down on stablecoins. Stablecoin reserves may be restricted. Stablecoin issuance may require licenses that are expensive or unavailable. But stable-value tokens operate within existing frameworks that institutions already understand. If you're comfortable with a tokenized Treasury, you're comfortable with a token backed by a Treasury.

Use Cases: Trading vs. Settlement

This regulatory divergence creates two different markets with two different use cases.

Stablecoins are designed for trading and movement. They enable fast cross-border payments, DeFi transactions, and cryptocurrency trading pairs. If you want to move value quickly across borders without friction, stablecoins are the tool. But institutions typically don't use stablecoins for core operations—they use them for tactical trading and liquidity needs.

Stable-value tokens are designed for settlement and institutional cash management. An asset manager might hold stable-value tokens as reserves. A central bank might settle tokenized assets using stable-value tokens as the medium. A corporate treasurer might use them to manage cash across jurisdictions with regulatory certainty. They're not trading tools; they're institutional infrastructure.

The Future: Institutional Tokenization Requires Stable-Value Tokens

As institutions move assets onto blockchain, they will not settle in stablecoins. They will settle in stable-value tokens—instruments backed by regulated assets, custodied by qualified custodians, and recognized by regulators as legitimate financial infrastructure.

The future of institutional onchain finance depends on stable-value tokens, not stablecoins. The distinction is not semantic. It's structural, regulatory, and fundamental to institutional adoption.