2 min read

A stablecoin is a cryptocurrency intended and designed to be stable in price. This property is achieved by pegging its value to a fiat currency, cryptocurrency, or less commonly, to a commodity.

This peg and the issuance of the stablecoin are managed by a centralized party, typically a company, which also maintains the stablecoin. Their business model is to lend and invest with part of the assets that are backing the stablecoin.

Stablecoins are typically issued as an asset on top of a blockchain that has its own native asset. This gives stablecoins the benefits of speed and global access of a blockchain, and the programmability of cryptocurrency, all while maintaining a relatively stable value and being less subject to regulation than fiat currencies. With that said, it is important to note that the centralized party that maintains the stablecoin has full control over all the assets.

The most popular stablecoins today are Tether (USDT), USD Coin (USDC) and Binance USD (BUSD). They are frequently used by traders to rapidly move in and out of cryptocurrencies and to move their wealth between exchanges to take advantage of arbitrage opportunities.

Stablecoins are also gaining in popularity as a store of value in countries with high inflation, where people may struggle to obtain physical dollars and cannot hold them through their banking services.