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Vishwas Bharadwaj
Asked: 2025-03-18T22:49:01+05:30 In:

What are stablecoins and how do they work?

What are stablecoins and how do they work?

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  1. Anamika

    Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, such as the U.S. dollar, euro, or even commodities like gold. Unlike cryptocurrencies like Bitcoin or Ethereum, which are highly volatile, stablecoins offer price stability, making them mRead more

    Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, such as the U.S. dollar, euro, or even commodities like gold. Unlike cryptocurrencies like Bitcoin or Ethereum, which are highly volatile, stablecoins offer price stability, making them more practical for everyday transactions.
    How they work:

    • Fiat-backed stablecoins: These are backed 1:1 by traditional currencies held in reserve. For example, USDC and USDT are backed by U.S. dollars.
    • Crypto-backed stablecoins: These use other cryptocurrencies as collateral, with over-collateralization to handle volatility (e.g., DAI).
    • Algorithmic stablecoins: These are not backed by reserves but instead use smart contracts and algorithms to control supply and maintain a stable price.

    Why they matter:
    Stablecoins offer a bridge between fiat and crypto, enabling fast, low-cost transactions without the instability of traditional cryptocurrencies.
    💡 Pro Tip: If you’re curious about how stablecoins are transforming finance in emerging markets, check out our in-depth article:
    👉 Stablecoin Adoption in Emerging Markets

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