What Is Stablecoin?

Stablecoin is a type of cryptocurrency whose exchange value is tied to another stable asset, such as fiat currency or a valuable commodity such as gold. The main goal of stablecoins is to reduce the volatility often associated with standard cryptocurrencies such as Bitcoin or Ethereum .

By tying their value to a more stable asset, stablecoins offer the advantages of blockchain technology while maintaining a stable value, making them ideal for everyday transactions and hedging against crypto market volatility .

There are several types of stablecoins, depending on the asset used as collateral: fiat-collateralized (e.g. USDT, which is backed by USD), crypto-collateralized (backed by another cryptocurrency), and non-collateralized (which use algorithm-like mechanisms to maintain price stability ). Stablecoins such as Tether (USDT) , USD Coin (USDC) , and Binance USD (BUSD) are some popular examples that are backed by fiat currency, and they are often used in crypto trading as a substitute for real currency.

Stablecoins play an important role in the cryptocurrency ecosystem. They not only facilitate transactions with lower volatility risk but also act as a bridge between the world of traditional finance and cryptocurrency. This is critical for operations such as cross-border money transfers, payments, and as a means of storing stable value. Apart from that, stablecoins are also used in decentralized finance (DeFi) to provide stability in lending, borrowing and other financial products.

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