Stablecoin

A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a fiat currency, commodity, or algorithmic mechanism. Unlike traditional cryptocurrencies like Bitcoin, which can experience significant price volatility, stablecoins aim to provide a consistent value that mirrors a more stable asset, such as the U.S. dollar or gold. Stablecoins offer the benefits of blockchain technology, such as fast and low-cost transactions, while minimizing the risk of price fluctuations, making them an attractive option for trading, remittances, and decentralized finance (DeFi) applications.

There are several types of stablecoins, including fiat-collateralized stablecoins, which are backed by reserves of the pegged asset, and algorithmic stablecoins, which use supply and demand mechanisms to maintain stability. Tether (USDT) is a popular example of a fiat-backed stablecoin, pegged to the U.S. dollar on a 1:1 basis. DAI, on the other hand, is an algorithmic stablecoin that maintains its peg to the dollar through a combination of collateralized assets and smart contract-based algorithms.