A stablecoin is a type of cryptocurrency designed to maintain a stable value over time, minimizing price volatility. This stability is achieved by pegging the value of the stablecoin to a reserve of assets, such as a fiat currency (like the US dollar, euro, or yen), a basket of currencies, or other assets like gold or other cryptocurrencies.
The primary goal of stablecoins is to provide the benefits of cryptocurrencies, such as decentralization, security, and fast transactions, while minimizing the wild price swings commonly associated with other cryptocurrencies like Bitcoin or Ethereum. This makes stablecoins more suitable for everyday transactions, remittances, and as a store of value.
Some well-known examples of stablecoins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD), which are all pegged to the US dollar. The specific mechanisms used to maintain the stable value can vary between different stablecoins, but they typically involve using smart contracts, collateralization, or algorithmic methods.