What is a stablecoin?

What is a stablecoin?

A stablecoin is a digital currency that is pegged to a 'stable' reserve asset, like the US Dollar. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin. Some of the most well-known stablecoins include USDT (aka Tether) and USDC (aka USD Coin).

Why are stablecoins important?

  • The USDT stablecoin, for example, is backed by dollar-denominated assets of at least equal fair value to the USDT in circulation in segregated accounts with US-regulated financial institutions. Such accounts are attested to (i.e. verified publicly) by an independent accounting firm.
  • Like many other stablecoins, USDT predominantly operates on the Ethereum blockchain. Stablecoins are free from the volatility of non-pegged cryptocurrencies, while inheriting some of their most powerful properties: Stablecoins are open, global, and accessible to anyone on the Internet, 24/7.
  • They‚Äôre fast, cheap, and secure to transmit.
  • They‚Äôre digitally native to the Internet and programmable.

What can you do with stablecoins?

  • Minimize volatility. The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot ‚ÄĒ sometimes by the minute. An asset pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won‚Äôt rise or crash unpredictably in the near future.
  • Trade or save assets. You don‚Äôt need a bank account to hold stablecoins;they‚Äôre easy to transfer. Stablecoins‚Äô value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.
  • Earn interest There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment.
  • Transfer money cheaply. People have sent as much as a million dollars worth of USDC with less than a dollar transfer fee.
  • Send internationally.

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