Stablecoins play an important role in the cryptocurrency economy, especially in facilitating transactions and purchases.
Some stablecoins are backed by cash and cash equivalents; others are backed by non-cash assets.
The most commonly used stablecoins include Tether (USDT), USD Coin (USDC), Binance (BUSD), Dai (DAI), and True USD (TUSD).
In the cryptocurrency economy, where transactions occur on decentralized blockchains, cash-like digital currency - which is not a decentralized asset - may not be distinguishable within the network. You need a cryptocurrency to facilitate transactions, but a currency that has stable cash value.
In short, you need a cryptocurrency with a stable cash value. Hence the need for stablecoins.
How are most stablecoins used?
Stablecoins are constantly evolving. However, there are two common use cases for stablecoins:
Facilitating cryptocurrency trading. Most traders use stablecoins to facilitate trading between different cryptocurrencies. Instead of selling cryptocurrencies for cash and using that cash to buy another cryptocurrency, a trader might use a stablecoin.
Purchasing goods and services over a blockchain network. It can be difficult to buy digital goods in a virtual marketplace using volatile cryptocurrencies. Stablecoins solve this problem.