A stablecoin is a type of cryptocurrency designed to maintain a stable price, usually pegged 1:1 to a traditional currency like the US dollar. While most cryptocurrencies experience large price swings, stablecoins aim to provide the benefits of digital assets—fast transfers, global accessibility, programmability—without the volatility.
There are several types of stablecoins:
- Fiat-backed – Each token is backed by real dollars held in a bank account. Examples include USDT (Tether) and USDC (Circle). These are the most widely used stablecoins.
- Crypto-backed – Collateralized by other cryptocurrencies, typically over-collateralized to account for price volatility. DAI by MakerDAO is a well-known example.
- Algorithmic – Use algorithms and smart contracts to control supply and maintain the peg without direct collateral. These carry higher risk.
Stablecoins play a central role in the crypto ecosystem:
- They serve as a safe haven during market downturns, allowing traders to exit volatile positions.
- They power DeFi protocols for lending, borrowing, and providing liquidity.
- They enable fast, low-cost international payments.
Stablecoins are available on virtually every exchange, including Binance and Coinbase. For a deeper look at how they work and the risks involved, read our complete stablecoin guide.