What are stablecoins and how do they work?

Stablecoins are a type of cryptocurrency designed to provide price stability in a highly volatile market. Unlike Bitcoin or Ethereum, stablecoins are pegged to relatively stable assets, usually fiat currencies like the US dollar or commodities like gold.

This pegging mechanism helps maintain a predictable value, making them ideal for:

Daily transactions

Trading and hedging

Protection against market volatility

The best stablecoins in the cryptocurrency market

Here are some of the most commonly used stablecoins in the market today:

Tether (USDT)

USD Coin (USDC)

Dai (DAI)

1 US Dollar (1 USD)

First Digital Dollar (FDUSD)

As of June 2025, the market capitalization of these five tokens combined exceeds $220 billion, reflecting their significant footprint in the crypto landscape and the broader financial ecosystem.

How do stablecoins maintain their stability?

Stablecoins maintain their value through various mechanisms, all designed to keep them tied to a reference asset. The three most common models are fiat-backed, crypto-backed, and algorithmic:

1. Fiat-backed guarantees: These