A stablecoin is a type of cryptocurrency designed to maintain a stable value or price by being pegged to another asset, such as a fiat currency or commodity. There are two types of stablecoins: fiat-collateralized and algorithmic. Stablecoins provide a reliable store of value without the risks of other cryptocurrencies that can rapidly fluctuate in value and are more often used for trading and speculative investments. Examples include USDT, USDC, and DAI.
A stablecoin is a type of cryptocurrency that is designed to maintain a stable value or price. Unlike other cryptocurrencies such as Bitcoin, which can have highly volatile prices, stablecoins are pegged to another asset, such as a fiat currency like the US dollar or a commodity like gold. This pegging ensures that the value of the stablecoin remains relatively stable and less susceptible to sudden price fluctuations. Stablecoins are often used as a means of payment or in trading and investment, as they provide a reliable store of value without the risks of traditional cryptocurrencies. Some examples of stablecoins include Tether (USDT), USD Coin (USDC), and Dai (DAI) which maintain a 1:1 value with USD.
These stablecoins maintain their value using an external collateral asset — such as USD held in a traditionally bank account. This means for each stablecoin token in circulation there is a corresponding asset such as a dollar in a bank account or ounce of gold stored in a vault. USDT and USDC are an example of collateralized stablecoins.
These stablecoins maintain their value by using a variety of software defined protocols. DAI is an example of an algorithmic stablecoin.