Stablecoins are a type of cryptocurrency designed to maintain a stable value by being tied to a reserve asset, such as a fiat currency (like USD), a commodity (like gold), or other assets. They aim to reduce the price volatility commonly associated with cryptocurrencies like Bitcoin and Ethereum.
Types of stablecoins
Fiat-backed stablecoins:These are backed 1:1 by fiat currency reserves held by a trusted entity. For example, 1 stablecoin equals 1 USD held in reserve.
Commodity-backed stablecoins:These are backed by physical assets like gold or other commodities.
Algorithmic stablecoins:These use algorithms and smart contracts to manage supply and demand, keeping their value stable without relying on physical reserves.
Why use stablecoins?
Price stability: Ideal for transactions or storing value without the price swings of other cryptocurrencies.
Global transactions: Enable fast and low-cost transfers across borders.
Fiat alternative: Offer a digital way to access the benefits of blockchain without full exposure to crypto market volatility.
Stablecoins combine the benefits of cryptocurrencies—such as speed and accessibility—with the predictability of stable value, making them useful for both everyday transactions and large-scale financial operations.