What is a Stablecoin?
A stablecoin is a type of cryptocurrency that is pegged to a stable asset, such as a fiat currency (e.g. US Dollar or Euro), a commodity (like gold), or an algorithmic mechanism. The goal is to minimise price volatility, making stablecoins a reliable medium of exchange or store of value within the digital asset ecosystem.
Stablecoins are a foundational component of the digital assets space, helping to bridge the gap between traditional finance and blockchain-based systems. They enable users to transact, store value, and access decentralised finance (DeFi) applications without being exposed to the volatility of other cryptocurrencies like Bitcoin or Ethereum.
They are typically classified into three categories:
- Fiat-collateralised (e.g. USDC, USDT): Backed 1:1 by reserves held in traditional banks.
- Crypto-collateralised (e.g. DAI): Backed by other cryptocurrencies, often overcollateralised to absorb volatility.
- Algorithmic (e.g. formerly UST): Use smart contracts and supply/demand mechanisms to maintain a target price — though this model has faced notable failures.
Stablecoins are widely used in DeFi, cross-border payments, and as an on-ramp/off-ramp between crypto and traditional finance. For family offices and institutional investors exploring digital assets, stablecoins can serve as a stable, liquid entry point into the broader crypto ecosystem.
For the latest on stablecoins, see Kjartan Rist’s most recent article here.
