How Stablecoins Work: A Simple Guide for Business Owners

Bitcoin goes up and down.
Stablecoins (like USDC or USDT) are designed to stay at $1.00.

Think of stablecoins as digital poker chips for the internet:

• You buy them with real dollars
• You send them instantly anywhere in the world
• The receiver can trade them back for real dollars

Key Takeaways

• The Concept:
  Stablecoins are digital cash. They do not fluctuate like Bitcoin.
• The Mechanism:
  For every 1 digital coin created, $1 of real money (or equivalent assets) is held in reserve.
• The Benefit:
  They move as fast as email but hold value like a dollar, ideal for business payments.

The Big Problem: Bitcoin Is a Rollercoaster

Imagine selling a cup of coffee for 1 Bitcoin.

• Today it’s worth $5
• Tomorrow it’s worth $3

You can’t pay rent with “maybe money.”

This is why stablecoins exist.

A stablecoin is a boring version of money on the blockchain, designed to equal $1.00 USD at all times.

To explain how this works, we’ll use one simple analogy:

The Casino Chip

1. Pegging: The One-to-One Rule

The Jargon:
“The stablecoin is pegged 1:1 to the US Dollar.”

The Casino Analogy

You walk into a casino and hand the cashier a $10 bill.
She gives you a red poker chip.

That chip is pegged to your $10.

• It doesn’t matter if it’s raining
• It doesn’t matter if the stock market crashes
• Inside the casino, that chip is always worth $10

Stablecoins work the same way.

One USDC or USDT token represents one real U.S. dollar sitting in a bank account somewhere.

2. Issuance: Creating New Digital Dollars

The Jargon:
“Minting” or “Issuance”

Back to the Casino Cage

When you hand the cashier $10, she takes a brand-new poker chip and gives it to you.

That chip didn’t exist before you just caused it to be issued.

How Issuance Works in Crypto

1. A customer wires $1,000,000 to an issuer (e.g., Circle or Tether)
2. The issuer places that money into a secure reserve
3. The issuer mints 1,000,000 digital tokens
4. Those tokens are sent to the customer’s wallet

Critical Rule:
You cannot create digital tokens without first depositing real money.
(This is how backed stablecoins work.)

3. On-Chain Movement: Sending Money Like Email

The Jargon:
“Peer-to-Peer Transfer” or “On-Chain Transaction”

You now have your poker chip.

You walk over and hand it to a friend.

• Did you need a bank? No
• Did you wait three days? No
• Did someone approve the transfer? No

You just handed it over.

Stablecoins Do This, Digitally

If you’re in New York and your supplier is in London, you can send $5,000 in stablecoins.

• Arrival time: ~15 seconds
• No business hours
• No intermediaries

Bank Wire vs. Stablecoin

• Bank Wire:
  3–5 days · ~$40 fee · Business hours only
• Stablecoin:
  ~15 seconds · ~$1 fee · Works 24/7

4. Redemption: Cashing Out to Real Money

The Jargon:
“Redemption” or “Burning”

Your supplier can’t buy groceries with digital tokens.

So they go back to the “casino cage” (the issuer or exchange).

What Happens Next

1. They submit 5,000 digital tokens
2. The issuer burns those tokens (destroys them)
3. $5,000 of real money is wired to their bank

The digital money becomes real money again.
The loop is complete.

Summary Table: Bank Transfers vs. Stablecoins

Why Should a Small Business Care?

You might think:
“I sell T-shirts. Why does this matter?”

It comes down to cash flow.

If you work with international clients, waiting days for wires slows your business. Stablecoins let you get paid almost instantly.

It’s like handing cash over the internet.

Nerdpay’s Take

At Nerdpay, we focus on Cash Flow on Autopilot, automating invoices, reminders, and collections.

But understanding modern payment rails like stablecoins gives business owners a strategic edge in a global economy.

Subscribe to the Nerdpay Blog for more plain-English guides on finance, automation, and getting paid faster.

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