Stablecoins
What Are Stablecoins & How Do They Work
What Are Stablecoins?
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being linked (pegged) to real-world assets like fiat currency (USD, INR), commodities (gold), or through algorithms.
👉 Unlike Bitcoin or Ethereum, stablecoins aim to reduce price volatility.
Why Stablecoins Exist
💰 Price stability in crypto markets
🔄 Easy trading between crypto assets
🌍 Fast & low-cost global payments
🏦 Bridge between traditional finance and crypt
How Stablecoins Work (Types)
1. Fiat-Backed Stablecoins
Example: USDT, USDC
Backed 1:1 with fiat currency (like USD)
Stored in bank reserves or audited accounts
Most commonly used
How it works:
1 Stablecoin = 1 USD (held in reserve)
2. Crypto-Backed Stablecoins
Example: DAI
Backed by cryptocurrencies (like ETH)
Over-collateralized to handle volatility
Managed using smart contracts
How it works:
$150 worth of crypto → issues $100 stablecoin
3. Algorithmic Stablecoins
Example: (Historical: UST)
Not backed by assets
Uses supply & demand algorithms
Higher risk, complex mechanism
How it works:
Algorithm adjusts coin supply to maintain price
Where Stablecoins Are Used
🪙 Crypto trading & liquidity
🌐 International money transfers
📉 Protecting funds from market volatility
💳 DeFi lending, staking & payment
Key Advantages
✅ Stable value
✅ Fast transactions
✅ Low fees
✅ Global accessibility
Risks to Know
⚠️ Centralization (fiat-backed)
⚠️ Reserve transparency
⚠️ Regulatory changes
⚠️ Algorithm failure (for algo coins)
