What is Stablecoin?

A stablecoin is a cryptocurrency engineered to maintain a stable price, typically pegged 1:1 to the US dollar. It combines the programmability of blockchain with the predictable value of fiat currency.

How does Stablecoin work?

Fiat-backed stablecoins like USDC hold actual dollars in reserve minting one token means depositing one dollar.
Crypto-backed stablecoins like DAI use overcollateralized crypto deposits managed by smart contracts.
Algorithmic stablecoins use automated supply adjustments to maintain the peg a model with a poor track record.
Oracles feed real-time price data to ensure the peg stays accurate.

Why does Stablecoin matter?

Stablecoins are foundational to DeFi, enabling borrowing, lending, and trading without exposure to crypto volatility. They also power global payments at blockchain speed.

Key features of Stablecoin

Designed to hold a 1:1 peg to a fiat currency
Three main types: fiat-backed, crypto-backed, algorithmic
Enables stable accounting in DeFi protocols
Subject to increasing regulatory scrutiny globally

Examples of Stablecoin

USDC is fully fiat-backed and regulated. DAI is decentralized, backed by overcollateralized ETH.

UST collapsed in May 2022 from its dollar peg, wiping out tens of billions and highlighting the risks of algorithmic designs.