Stablecoin

A stablecoin is a type of cryptocurrency designed to maintain a stable value, usually pegged to a traditional fiat currency such as the US dollar (USD), euro (EUR), or other assets like gold. The goal of stablecoins is to reduce the volatility common in cryptocurrencies, making them more practical for everyday transactions, value storage, and decentralized finance (DeFi) applications.

Stablecoins can be categorized into three main types:

1. Fiat-backed stablecoins – backed by traditional currencies held in bank reserves (e.g., USDT, USDC).
2. Crypto-backed stablecoins – maintain their value through overcollateralization with cryptocurrencies (e.g., DAI).
3. Algorithmic stablecoins – regulate their supply through smart contracts and market mechanisms but are more prone to losing their stability (e.g., UST).

Stablecoins play a crucial role in the crypto ecosystem, enabling fast and low-cost transfers and seamless trading on exchanges without converting to fiat currencies.