In brief Stablecoins are cryptocurrencies “pegged” to a fiat currency. They can be used as stores of value or units of account, as well as in other use cases where volatile cryptocurrencies may be less desirable.
Since their inception, cryptocurrencies have been considered particularly volatile investment instruments when it comes to their price. That’s led to price jumps and crashes, preventing cryptocurrencies from being used for everyday goods and services in some cases, due to the risks for vendors and merchants.
That’s where stablecoins come in. The theory goes, if you create a currency that is ‘pegged’ or attached to a regular fiat currency like the US dollar or something else with a relatively stable price, it will prevent price swings.
We explore these more below.
What is a stablecoin?
Stablecoins are cryptocurrencies that claim to be backed by fiat currencies—dollars, pounds, shekels, rubles, etc.
The idea is that, unlike cryptocurrencies like Bitcoin, stablecoins’ prices remain steady, in accordance with whichever fiat currency backs them.
Stablecoins are used as stores of value or units of account, as well as in other use cases where volatile cryptocurrencies may be less desirable. Different stablecoins use different strategies to achieve price stability; some are centralized, others are decentralized.
What are some examples of stablecoins?
Centralized stablecoins
💵 Tether (USDT): Tether is one of the first stablecoins and the most famous. It claims it is backed by a reserve of real dollars—”collateral”—that is “off-chain,” i.e. in a real-world location that is controlled by a centralized third party.
With this stash safely in the vault of a bank, investors can be confident that their tethers really are worth one dollar each, keeping the price steady. The stablecoin accounts for a whopping 48% of
