What is a stablecoin?

Bernie Bilotta
• Publilshed
February 16, 2023

Stablecoins are a type of digital currency that creates a link between the world of cryptocurrency and traditional fiat currency. These coins are pegged to a reserve asset, such as gold or the U.S. dollar, which significantly reduces volatility compared to other cryptocurrencies like Bitcoin. This makes them an attractive choice for day-to-day transactions and transfers between exchanges. Stablecoins like USD Coin (USDC) have seen billions of dollars invested in them, making them one of the most widely used and preferred options for storing and trading value in the crypto world.

Why are stablecoins important?

Stablecoins are important because they provide a way to reduce the volatility associated with non-pegged cryptocurrencies.

For example, USDC stablecoins are supported by assets denominated in US dollars which are held in separate accounts with regulated financial institutions. These accounts are independently verified by accounting firms. USDC and other stablecoins are built on the Ethereum blockchain, which means they inherit the safe, secure, and global attributes of non-pegged cryptocurrencies, plus they are programmable since they are natively digital. The fact that they are pegged to a reserve asset also makes them free from the wild price swings that non-pegged cryptocurrencies experience.

What can you do with stablecoins?

Stablecoins can be used in a variety of ways, such as:

  • Volatility reduction As mentioned above, stablecoins are pegged to more stable assets, so you won't experience the same wild price fluctuations that you can with Bitcoin or Ether.
  • Trading and saving Stablecoins can be used for trading, saving, or any other financial purpose. They are easy to transfer and can be sent worldwide, even to places where traditional fiat currencies may be difficult to obtain or unstable.
  • Cheap transfers Stablecoins are incredibly inexpensive to transfer, with some individuals having sent millions of dollars in USDC for fees of less than a dollar.
  • International transfers Stablecoins are perfect for sending money anywhere in the world due to their fast processing and low transaction fees. Plus, they are not subject to exchange rate fluctuations as traditional currencies are. This makes them ideal for international payments and transfers.

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