Definition
A stablecoin is a cryptocurrency created to maintain a stable price, typically linked to an external reference such as a fiat currency or a basket of assets. Instead of fluctuating widely like many other crypto assets, a stablecoin aims to stay close to a target value, most commonly 1:1 with a currency like the US dollar. This stability is usually supported by reserves, on-chain mechanisms, or a combination of both.
Well-known examples of stablecoins include USDT, USDC, DAI, and TUSD, each using different designs and backing methods to hold their peg. Because of their relatively predictable value, stablecoins are widely used as a basic unit of account and medium of exchange in many decentralized finance environments.
Context and Usage
Stablecoins function as a bridge between traditional money and digital assets, allowing value to move across blockchain networks while referencing familiar currencies. In many decentralized finance applications, they act as a common settlement asset, collateral type, and pricing benchmark. Their design focuses on reducing volatility rather than maximizing price appreciation.
The concept of a stablecoin is closely tied to the idea of maintaining a peg, and events where that peg is lost are often described as a depeg. Different stablecoins such as USDT, USDC, DAI, and TUSD illustrate how the same basic concept can be implemented with varying reserve structures, governance models, and risk profiles while still aiming to provide a relatively stable crypto-denominated value.