A stablecoin is a cryptocurrency designed to have low price volatility. Stablecoin prices are stable and 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.
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 currency 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, stablecoin prices remain steady, in accordance with whichever fiat currency backs them.
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