Stablecoin
Stablecoin is a cryptocurrency asset designed to maintain a stable value relative to an underlying asset, typically the US dollar. Unlike Bitcoin and Ethereum, stablecoins minimize volatility through various mechanisms designed to maintain their peg.
Main types:
| Type | Mechanism | Examples |
|---|---|---|
| Fiat-backed | Reserves held in dollars/government securities | USDT, USDC |
| Crypto-backed | Overcollateralization with cryptocurrency | DAI, LUSD |
| Algorithmic | Algorithm-based supply adjustment | UST — collapsed in 2022 |
Stablecoins are used for trading (as the quote currency in trading pairs), preserving value without converting to fiat, and making transfers with minimal fees.
⚠️ Stablecoins Are Not Risk-Free
Depegging (loss of the peg), issuer-initiated address freezes, and smart contract risks are real threats even for the largest stablecoins.