Stablecoins
Stablecoins are a type of Cryptocurrency designed to maintain a stable value relative to a specific Asset or basket of Assets, often pegged to fiat currencies like the US dollar or Commodities such as gold. They aim to combine the benefits of digital currencies—such as fast transactions and lower fees—with the price stability of traditional currencies.
Common examples of stablecoins include:
- USDC (USD Coin) – pegged to the US dollar, issued by Circle and Coinbase.
- Tether (USDT) – also pegged to the US dollar, one of the oldest and most widely used stablecoins.
- DAI – a decentralized stablecoin created by MakerDAO, pegged to the US dollar but maintained through Smart Contracts.
- TrueUSD (TUSD) – a fiat-backed stablecoin that is fully Collateralized with US dollars held in Escrow accounts.
Stablecoins can be categorized into three types:
- Fiat-Collateralized stablecoins: Backed by reserves of Fiat Currency.
- Crypto-Collateralized stablecoins: Backed by other cryptocurrencies, often over-Collateralized to absorb price volatility.
- Algorithmic stablecoins: Use algorithms and Smart Contracts to manage supply and demand, without backing by physical Assets.
Use cases for stablecoins include:
- Facilitating transactions in Decentralized Finance (DeFi) applications.
- Providing a stable medium of exchange in countries with high inflation.
- Serving as a bridge between traditional finance and the crypto world.