A stablecoin is a type of cryptocurrency that is designed to maintain a stable price by avoiding volatility, which is very common among cryptocurrencies. Recently, this type of digital currency has grown in popularity, and we now have numerous stablecoin projects. Tether is one of the most popular stablecoins available.
Many stablecoins have their values determined by pegging them to the price of another asset. Here are three examples of such assets:
- Strong currencies such as USD.
- Other cryptocurrencies like Ethereum or Ripple.
- Commodities such as gold and silver.
The idea behind stablecoins is to provide some of the advantages of both the conventional currency and cryptocurrency worlds. Currently, stablecoins are mostly used as a hedge against the high volatility of cryptocurrency markets. However, depending on the context, they can also be used as stable currencies providing increased transparency and decentralization. Also, when compared to traditional currencies, they present faster transactions and lower fees — making them quite useful for everyday payments and international transfers alike.