Stablecoins are cryptocurrencies engineered to maintain a stable value, typically pegged to a fiat currency like the US dollar or a commodity. They aim to...
A stablecoin is a type of cryptocurrency designed to minimize price volatility by pegging its value to a stable asset, such as a fiat currency (e.g., USD), a commodity (e.g., gold), or managed through algorithms.
The primary types include fiat-backed (e.g., Tether, USDC), crypto-backed (e.g., Dai), and algorithmic stablecoins, each using different mechanisms to maintain their peg.
They provide price stability, enabling users to store value without volatility, facilitate efficient transactions, and serve as a common trading pair, bridging traditional finance with decentralized applications (DeFi).
Fiat-backed stablecoins hold equivalent reserves of traditional assets. Crypto-backed stablecoins use over-collateralization with other cryptocurrencies. Algorithmic stablecoins employ smart contracts to dynamically adjust supply and demand.
Regulation varies significantly by jurisdiction. Many countries are actively developing or implementing specific regulatory frameworks for stablecoins due to their growing importance and potential impact on financial systems.