📘 Stablecoins 101

Stablecoins are cryptocurrencies designed to maintain a stable value, usually pegged to a fiat currency (like USD or EUR) or other assets such as gold. They combine the benefits of blockchain — transparency, fast transfers, global accessibility — with price stability, making them ideal for payments, trading, and treasury management.

Unlike typical cryptocurrencies like Bitcoin or Ethereum, which can have large price swings, stablecoins aim to provide a predictable unit of value, enabling businesses and individuals to operate on-chain without exposure to extreme volatility.

Why Stablecoins Matter

Stablecoins play a critical role in the blockchain ecosystem:

• Payments & Settlements – Enable instant, cross-border transfers without relying on traditional banking rails.
• DeFi & Trading – Serve as collateral, liquidity pairs, or a stable store-of-value in decentralized finance platforms.
• Remittances – Allow fast and low-cost international money transfers.
• Treasury & Accounting – Companies can hold and move funds on-chain while avoiding volatility.
• Hedging Volatility – Crypto investors use stablecoins to park funds during market turbulence without exiting the blockchain ecosystem.

How Stablecoins Maintain Stability

Stablecoins maintain their peg using different mechanisms, which determines their type:

1. Fiat-Collateralized – Backed 1:1 by fiat reserves held in banks or custodial accounts.
2. Crypto-Collateralized – Backed by other cryptocurrencies locked in smart contracts.
3. Algorithmic – Use supply-demand algorithms or protocol incentives to maintain their price.

Each approach has trade-offs in centralization, transparency, and risk, which we cover in detail on the respective subpages.

A Brief History

• 2014–2017: Early fiat-backed stablecoins like Tether (USDT) emerged to provide stability for traders.
• 2018–2020: Crypto-backed and decentralized alternatives like DAI gained traction, offering transparent, on-chain collateralization.
• 2021–Present: Algorithmic stablecoins and hybrid models experimented with new mechanisms, though some failed (e.g., Terra UST), highlighting the importance of governance and risk management.

Stablecoin Categories

Stablecoins are generally classified into three types:

1. 🏦 Fiat-Backed Stablecoins →
2. ⚖️ Crypto-Backed Stablecoins →
3. 🧠 Algorithmic Stablecoins →

Each subpage explains how the stablecoin type works, pros & cons, and notable examples.

Key Takeaways

• Stablecoins provide a bridge between volatile crypto and traditional finance.
• Understanding the type of stablecoin is crucial for evaluating risk and use cases.
• They are foundational to DeFi, payments, remittances, and treasury operations.
• For in-depth examples, mechanisms, and pros/cons, visit the linked subpages.

Learn More / Next Steps

• Explore real-world use cases: 🌐 Use Cases & Ecosystem Impact →
• Deep dive into stablecoin mechanics, risks, and adoption trends on each subpage.