Stablecoin
A cryptocurrency designed to maintain a stable value, typically pegged to the US dollar or another fiat currency.
What is Stablecoin?
A stablecoin is a type of cryptocurrency engineered to maintain a stable value — usually a 1:1 peg with the US dollar — in contrast to highly volatile cryptocurrencies like Bitcoin. Stability mechanisms vary: fiat-collateralized stablecoins (e.g., USDC, Tether/USDT) are backed by cash reserves; crypto-collateralized stablecoins (e.g., DAI) are backed by crypto assets with overcollateralization; algorithmic stablecoins use supply-and-demand algorithms to maintain the peg. Stablecoins are widely used in DeFi, crypto trading, cross-border payments, and as a 'safe harbor' within crypto portfolios. The catastrophic collapse of TerraUSD (UST) in May 2022 — wiping out $40+ billion in days — highlighted the risks of algorithmic stablecoins and triggered significant regulatory attention.
Example
USDC (USD Coin), issued by Circle and Coinbase, is a fiat-collateralized stablecoin backed dollar-for-dollar by cash and short-term US Treasuries, audited monthly by accounting firms. By 2024, USDC's market cap exceeded $40 billion and was used for billions of dollars in daily cross-border payments at a fraction of wire transfer costs and time.