Stablecoin

A stablecoin is a cryptocurrency designed to hold a steady value, usually by pegging to a fiat currency such as the US dollar. Stablecoins give traders and users a way to hold value on-chain without the price swings of assets like Bitcoin.

How it works

There are three broad designs. Fiat-backed stablecoins hold cash and short-term reserves and issue one token per dollar held. Crypto-collateralized stablecoins lock up more than a dollar of volatile crypto for each token to absorb price moves. Algorithmic stablecoins try to hold the peg through supply rules and incentives rather than reserves, a design that has historically proven the most fragile.

Why it matters

Stablecoins are the main settlement layer of crypto trading, the backbone of DeFi lending, and an increasingly common rail for cross-border payments. Their key risks are reserve quality and redemption — whether each token can really be exchanged for the value it claims.

Example

USDC and USDT are large fiat-backed stablecoins; DAI is a well-known crypto-collateralized stablecoin.