What Is a Stablecoin?
Stablecoins are a type of cryptocurrency, a digital asset whose value is directly linked (pegged) to an external and generally stable asset class such as a specific fiat currency like the U.S. dollar or gold. The cryptocurrency market is fairly volatile, so stablecoins can offer a less risky way of storing money on the blockchain as they maintain a predictable price range.
Stablecoins are used completely differently than other cryptocurrencies that people tend to buy as an investment. They are often used to send money digitally to another party in the world. They are also used as a way of transferring your own funds between cryptocurrency exchanges, as well as storing funds on an exchange so that you can quickly use them to purchase other cryptocurrencies. Some online platforms even allow you to lend out your stablecoins in order to earn high rates of interest.
What are some stablecoin examples?
Here are some popular examples of stablecoins:
- Binance USD (BUSD): BUSD is a stablecoin founded by Paxos and Binance. It is a regulated, fiat-backed stablecoin pegged to the U.S. dollar. For every unit of BUSD, there is one U.S. dollar held in reserve. The supply of BUSD is pegged to the U.S. dollar at a ratio of 1:1. As an example, when the price of the U.S. dollar rises or falls, the price of BUSD also does in equal amounts. This is the most traditional model of stablecoin. See www.binance.com/en.
- Tether (USDT): Tether is designed to provide a stable price point at all times. The Tether stablecoin was created to function as the internet’s "digital dollar," with each token being worth $1.00 USD and backed by $1.00 USD in physical reserves. See tether.to/en.
- USD Coin (USDC): USD Coin is another popular stablecoin like Tether and shares similar characteristics. USDC is often described as potentially a safer stablecoin because it places huge emphasis on transparency of its fully backed reserves and goes to great effort to comply with government regulation and audits. See www.circle.com/en/usdc.
