A stablecoin is a type of cryptocurrency that’s built to stay put. Its value is tied (or “pegged”) to something stable, like the US dollar, the euro, or even gold.
Unlike Bitcoin or Ethereum, which can swing wildly in price, stablecoins are designed to hold their value. That makes them useful for everyday transactions, cross-border payments, and storing value without the crypto rollercoaster.
How are stablecoins backed? Not all stablecoins are built the same. Here are the main types:
Fiat-backed
Backed 1:1 by real-world assets like USD or EUR
Example: USDC, USDT
Reserves are usually held in banks or similar institutions
Crypto-backed
Collateralized by other cryptocurrencies
Over-collateralized to handle volatility
Example: DAI
Managed by smart contracts instead of central banks
Algorithmic
Not backed by assets. They use code and supply-demand rules to keep prices stable
High risk, and many have failed
(Good policy note: these need special regulatory attention)
🏛️ Why do stablecoins matter in policy circles?
They can enable faster, cheaper payments, especially across borders. Sending $100 internationally with a traditional bank can take days and cost $10+ in fees. A stablecoin can do it in seconds, for a fraction of a cent.
They raise big questions around monetary policy, consumer protection, and regulatory clarity
They might even overlap with central bank digital currencies (CBDCs) in function.