A cryptocurrency with extremely low volatility, sometimes used as a means of portfolio diversification. Examples include gold-backed cryptocurrency or fiat-pegged cryptocurrency.
Stablecoins are cryptocurrencies
with a fixed value that’s usually pegged to a leading fiat currency like the U.S. dollar, a basket or fiat currencies or exchange-traded commodity
such as precious metals.
serve as a much-needed antidote to price volatility in the cryptocurrency markets.
Stablecoin currencies are collateralized by an underlying asset ,usually the one it digitally represents, in order to deliver the same price stability as fiat currencies.
A stablecoin such as Tether (USDT)
is backed by the U.S. dollar on a 1:1 basis. For every single unit of USDT that's in circulation, $1 is supposed to be set aside and held in reserve by its issuer Tether Ltd, which is controlled by the founders of the crypto exchange Bitfinex
The number of stablecoins out there has exploded in recent years
— as well as the quantity. It's also possible to find crypto assets that are pegged to other fiat currencies such as the euro, and even other crypto assets!
Broadly speaking, there are 4 types of stablecoins
It seems that the possibilities are endless with this new technology. Some stablecoin projects have tied their digital assets to precious metals, or other cryptocurrencies. Projects such as Facebook's failed Libra (now Diem)
intended to allow stablecoins to be used as a medium of exchange — backed by a basket of different national currencies.
Stablecoins are exceedingly easy to buy and are listed on most cryptocurrency exchanges, including Binance
and Coinbase. In short, they provide welcome liquidity and safe harbour for crypto investors and are an integral part of the digital assets space. While new stablecoin-focused regulations are always rumored to be incoming
, they are still tolerated by authorities worldwide due to their usually high compliance with financial legislative requirements. Stablecoins have almost certainly provided the inspiration and playbook for central bank digital currencies (CBDC).