What are Stable coins?
Stablecoins are a category of crypto currencies that are designed to maintain a stable value, typically by being pegged to a reserve of assets such as fiat currencies (e.g., USD, EUR), other crypto currencies (e.g., Bitcoin or Ethereum), or commodities. The primary goal of stablecoins is to provide the benefits of crypto currencies, like fast and borderless transactions, while minimizing the price volatility that is common in traditional crypto currencies like Bitcoin and Ethereum.There are three main types of stablecoins:
Fiat Collateralized Stablecoins:
These stablecoins are backed by reserves of fiat currency. Each issued stablecoin represents a specific amount of the reserve currency. Tether (USDT), USD Coin (USDC), and TrueUSD (TUSD) are examples of fiat collateralized stablecoins.
Crypto Collateralized Stablecoins: These stablecoins are backed by a reserve of other crypto currencies. Users lock up a certain amount of cryptocurrency as collateral to create stablecoins. DAI is an example of a crypto collateralized stablecoin.
Algorithmic Stablecoins: These stablecoins do not rely on physical reserves but use algorithms to control their supply in a way that stabilizes their value. Examples include Terra (LUNA) and Ampleforth (AMPL).
Stablecoins are widely used in the cryptocurrency space for trading, as a store of value, and for conducting transactions, especially in situations where the price stability of traditional fiat currencies is desired while still benefiting from the advantages of blockchain technology.
