Overview
Stablecoins aim to solve the problem of high volatility in the cryptocurrency market. By pegging their value to a stable asset (usually the US Dollar), they provide a reliable medium of exchange and store of value within the crypto ecosystem.
Types of Stablecoins
- Fiat-Collateralized: Backed 1:1 by fiat currency held in a bank (e.g., USDC, USDT).
- Crypto-Collateralized: Backed by other cryptocurrencies, usually over-collateralized to account for volatility (e.g., DAI).
- Algorithmic: Use smart contracts to manage supply and demand without direct collateral.
Use Cases
- Trading pair on exchanges.
- Remittances and payments.
- Earning interest in DeFi protocols.