Stablecoins bridge the gap between volatile crypto and stable fiat. Here's how they work.
What are Stablecoins?
Stablecoins are cryptocurrencies designed to maintain a stable value, usually pegged to $1 USD.
Types of Stablecoins
Fiat-Backed
Backed 1:1 by dollars in bank accounts.
- USDC (Circle)
- USDT (Tether)
Crypto-Backed
Over-collateralized by cryptocurrency.
- DAI (MakerDAO)
Algorithmic
Use algorithms to maintain peg (higher risk).
Use Cases
- Trading pairs on exchanges
- DeFi lending/borrowing
- Payments and remittances
- Hedging against volatility
- Yield farming base
Risks
- De-pegging events
- Regulatory concerns
- Counterparty risk (centralized)
- Smart contract risk (decentralized)