Stablecoins aim to create a stable and reliable environment to increase cryptocurrency adoption and negate digital assets' speculative nature. The backing asset could be a combination of currencies, a single fiat currency, or other valuable assets. Stablecoin reduces price volatility by backing its value against a conventional asset. What is stablecoin?Ī stablecoin is a digital asset that remains stable in value against a pegged external traditional asset class. We'll also dive into their history and review the types of stablecoins available in the market. In this article, we'll dive into stablecoins and why we need them. It represents real money, which makes for its price stability. Stablecoins achieve stability by pegging themselves to a less volatile asset such as gold or fiat currency. Ideally, a digital asset should have low inflation to maintain its purchasing power. The asset also needs to act as a medium of exchange - its value should remain stable over time. The market needed an asset that can be used as a store of monetary value for entering and exiting (on and off ramps) decentralized finance ecosystems. We need a digital asset that is decentralized but doesn't change in value. Price fluctuation makes Bitcoin too volatile for daily use. For this reason, stablecoins are often the go-to option for financial decisions from both institutional and retail users of cryptocurrencies. Stablecoins backed by more traditional investments give markets greater confidence in their price. This stability is commonly achieved by pegging the token to an asset such as gold or fiat currency.Ĭrypto volatility, both long term and short term, has made coins largely considered a speculative investment. Stablecoins are an attempt to create a cryptocurrency token with a stable price. And as the media increasingly covers the subject, many people are left wondering: What is stablecoin?
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