A stablecoin is a type of cryptocurrency designed to maintain a stable value, usually by being pegged to a specific asset such as:
1. Fiat currency – like:
• USDT (Tether), USDC (USD Coin), and BUSD (Binance USD), which are typically pegged to 1 US dollar.
2. Commodities – like:
• PAXG (Pax Gold), which is backed by the price of gold.
3. Other cryptocurrencies (crypto-collateralized) – like:
• DAI, which is pegged to the dollar and backed by crypto assets such as ETH.
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Main functions of stablecoins:
1. Store of value – They are not affected by price volatility like other cryptocurrencies (e.g. BTC, ETH).
2. Medium of exchange – Useful for fast, low-cost cross-border transfers.
3. Safe haven during market volatility – Traders can temporarily convert assets into stablecoins without withdrawing to fiat.
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Types of stablecoins based on their collateral of this picture
If you want to go deeper into how stablecoins work or how to use them in trading, feel free to ask in comment.
