Stablecoins are a special type of cryptocurrency designed to maintain a steady value. Unlike Bitcoin or Ethereum, which can rise and fall dramatically, stablecoins are “pegged” to more stable assets like the U.S. dollar, euro, or gold.
This means one stablecoin is usually equal to one unit of the asset it's tied to—like $1 USD.
There are several types of stablecoins. Fiat-collateralized stablecoins (like USDT or USDC) are backed by real money held in reserve.
Crypto-collateralized stablecoins (like DAI) use other cryptocurrencies as backing, often over-collateralized to reduce risk.
Then there are algorithmic stablecoins, which rely on smart contracts and algorithms to balance supply and demand—though some of these, like TerraUSD, have famously failed.
Stablecoins are widely used in the crypto world. They make trading easier, allow for faster and cheaper money transfers, and give users a way to avoid market volatility without converting crypto back into cash.
They’re also commonly used in DeFi (Decentralized Finance) to earn interest, provide liquidity, or take out loans.