What Is a Stablecoin?

There is a cryptocurrency that has been appearing frequently in the news lately: the stablecoin.
Politicians are saying that stablecoins can help overcome exchange rate risk, and in the U.S. a stablecoin bill has been passed, which is acting as a positive factor bringing money into the crypto market.
Let's find out what a stablecoin is.
1. What is a stablecoin?
- Stablecoin is a word combining the English 'Stable' and 'Coin', and, as the name suggests, refers to a cryptocurrency whose price barely changes.
- It is generally pegged at 1 stablecoin = 1 U.S. dollar (USD), so price fluctuations are small.
- This fixed value is possible because stablecoins are issued backed by fiat currencies (dollars, euros, etc.) or real assets such as gold and bonds.
2. Why they are issued
- Bitcoin and Ethereum are attractive investment vehicles, but because their values change so much, it is burdensome to use them for financial services such as actual payments or loans
- Stablecoins were issued to solve this problem, and thanks to their stable prices, they can be put to practical use in everyday payments, overseas remittances, lending platforms and more
3. Types
- Fiat-collateralized : dollars are deposited in an actual bank account, and only that amount is issued (Coin : USDT (Tether))
- Crypto-collateralized : issued with cryptocurrencies such as Ethereum pledged as collateral (Coin : DAI (MakerDAO))
4. Real-world use cases
- International remittances: because fees are low and transfers are fast, stablecoins are widely used, especially in developing countries and for remittances by overseas workers.
- In countries like Venezuela, where the value of the national currency is falling rapidly, people protect their assets by buying stablecoins and holding assets pegged to the U.S. dollar
There are a great many types of cryptocurrencies. Among them, stablecoins occupy an important position, acting as a bridge between traditional finance and the world of digital assets.
They mean more than just digital money and look set to be used even more widely as a means of international remittance, financial services and asset protection.
However, if you are looking for a crypto investment purely for price gains, like Bitcoin, stablecoins are not attractive, so it seems better to look at other existing cryptocurrencies.