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What is a stablecoin?
Greater stability in a world of volatility.
A stablecoin is a type of cryptocurrency pegged to a low-risk asset, like the US dollar, to reduce volatility. It is used in everyday transactions to pay for goods and services, and it has also become a common component of blockchain-based financial services due to its overall speed and security.
With a global market cap of over $200 billion, federal stablecoin legislation is expected to take center stage in 2025, which means now may be a great time to consider adding stablecoin to your portfolio.
What is a stablecoin?
Stablecoins are a type of cryptocurrency whose value is tied to another asset, such as fiat currency like US dollars, another type of low-risk asset like gold or even another form of cryptocurrency. They are typically more stable than your average crypto coin, like bitcoin, and are less vulnerable to market fluctuations. This stability is achieved through pegging, or attaching, the stablecoin to an external asset.
Before you begin investing in cryptocurrency, it is critical to know what a stablecoin is in crypto and how it works to understand how it might suit your portfolio.
Stablecoin uses
Stablecoins are useful in several situations:
- Protection against market volatility. Stablecoins provide greater price stability than other types of high-risk cryptocurrency, especially during market downturns.
- Medium of exchange. Instead of using fiat currency, consumers can use stablecoin to buy other cryptocurrencies.
- Financial products. Thanks to their stability, stablecoins could become the new payment method of choice for everything from crypto-backed loans to insurance.
- Prediction markets. Stablecoin allows investors to better forecast financial outcomes without the constant unknown of market volatility.
- Global access to a stable currency. Stablecoin offers a common form of currency across different countries and economies, especially those subject to hyperinflation.
Compare stablecoins side-by-side
| Coin name | Issued by | Launched | Type of stablecoin | Features |
|---|---|---|---|---|
| AAA Reserve | Arc Fiduciary Ltd | 2017 | Fiat backed | Backed by cash, gilts and AAA-rated credit investments |
| AUDRamp (AUDR) | OnRamp Technologies | 2018 | Fiat backed | Backed by and pegged to AUD |
| A-Euro | Augmint | Not yet launched | Crypto backed | Pegged to EUR and backed by ETH |
| Bridgecoin (BRC) | Sweetbridge | Not yet launched | Fiat backed | To be backed by fiat, crypto, IPs, physical assets and more |
| Basis | Basis | Not yet launched | Seigniorage shares | Prices kept stable by algorithmically adjusting supply |
| BitUSD (BITUSD) | BitShares | 2014 | Crypto backed | Backed by BTS and pegged to USD |
| Boreal | Aurora | Not yet launched | Crypto backed | Backed by ETH and various cryptocurrencies |
| CarbonUSD | Carbon | Not yet launched | Seigniorage shares | Coin supply algorithmically adjusted based on demand. Pegged to USD |
| Digix Gold Token (DGX) | Digix Global | 2018 | Fiat backed | Backed by gold. Each token represents 1g of gold |
| Dai (DAI) | MakerDAO | 2017 | Crypto backed | Backed by ETH and pegged to USD |
| EURS | STASIS Foundation | 2018 | Fiat backed | Backed by and pegged to EUR |
| eUSD (EUSD) | Havven | 2018 | Crypto backed | Backed by ETH and pegged to USD |
| μFragments | Fragments | Not yet launched | Seigniorage shares | Pegged to USD. Supply inflates and deflates in response to demand |
| Gemini Dollar (GUSD) | Gemini | 2018 | Fiat backed | Backed by and pegged to USD |
| Globcoin (GLX) | RCS | 2019 | Fiat backed | Pegged to a basket of 15 fiat currencies and gold |
| HelloGold (GOLDX) | HelloGold Sdn Bhd | 2017 | Fiat backed | Backed by gold. Each token represents 1g of gold |
| kUSD (KUSD) | Kowala | Not yet launched | Seigniorage shares | Pegged to USD. Supply expands and contracts depending on market conditions |
| Monerium | Monerium | Not yet launched | Fiat backed | Backed by USD, EUR and other currencies |
| NOS (Nollar) | NOS | Not yet launched | Fiat backed | Backed by EUR, pegged to USD/other fiat currency |
| nUSD (NUSD) | Havven | Crypto backed | Backed by nomins (Havven’s native currency) and pegged to USD | |
| Paxos Standard (PAX) | Paxos Trust Company | 2018 | Fiat backed | Backed by and pegged to USD |
| Rockz | Fiat backed | Backed by CHF | ||
| Saga (SGA) | Saga Foundation | Not yet launched | Fiat backed | Pegged to the International Monetary Fund's special drawing rights (SDR), which is in turn tied to an underlying basket of currencies |
| StableUSD | Stably Blockchain Labs | Not yet launched | Fiat backed | Backed by and pegged to USD |
| Stronghold USD | Stronghold | 2018 | Fiat backed | Backed by and pegged to USD |
| SwissRealCoin | SwissRealCoin | 2018 | Fiat backed | Backed by a portfolio of Swiss commercial real estate |
| Tether (USDT) | Tether | 2014 | Fiat backed | Backed by and pegged to USD |
| TrueUSD (TUSD) | TrueCoin LLC | 2018 | Fiat backed | Backed by and pegged to USD |
| USD Coin (USDC) | Circle | 2018 | Fiat backed | Backed by and pegged to USD |
| USDVault | Vault | 2018 | Fiat backed | Backed by gold and pegged to USD |
| White Standard | The White Company | 2018 | Fiat backed | Pegged to USD |
| X8Currency | X8 Currency | 2018 | Fiat backed | Backed by eight fiat currencies and gold |
Types of stablecoins
There are four main types of stablecoin:
1. Fiat-collateralized stablecoins
These stablecoins are pegged to a certain asset that supports their value, such as fiat currency like the US dollar or euro. The entity backing the stablecoin is typically a centralized company responsible for maintaining the reserves that preserve its value. Popular examples of fiat-collateralized stablecoin include USD Coin (USDC) and tether (USDT).
2. Commodity-backed stablecoins
Similar to fiat-collateralized stablecoin, commodity-backed stablecoins are pegged to tangible assets like real estate or precious metals like silver. They offer asset-backed ownership based on the number of stablecoins you purchase. Common examples of commodity-backed stablecoins include tether gold and paxos gold.
3. Crypto-collateralized stablecoins
Crypto-backed stablecoins are pegged to specific cryptocurrencies. However, because crypto is typically more volatile than stablecoins, the ratio is adjusted through overcollateralization, meaning they hold more cryptocurrency in reserves to protect against a market downturn. DAI, mainly linked to ethereum, and sUSD from the Synthetix Network are two popular examples.
4. Algorithmic stablecoins
Also known as non-collateralized stablecoin, this form of stablecoin is based on an automated software algorithm designed to balance supply and demand. It uses a smart contract to adjust the coin supply automatically so its value remains stable. Ampleforth is a popular example of an algorithmic stablecoin today, but these types of stablecoins have proven risky, as seen by the failure of TerraUSD (UST).
Stablecoin regulations
Stablecoin is still a developing system that is growing every day. It falls under the watchful eye of regulators who remain cautious, given its quick escalation in the investment market. Still, the US remains an influential voice in global discussions around the regulation of stablecoin, with efforts underway to provide greater protection for investors and the broader economy.
“As regulation continues to evolve, stablecoins are set to play an increasing role in transforming payments, remittances and DeFi,” predicts S&P Global. “We think that it will be key for issuers and users to stay aware of regional differences, but overall, the trend toward regulatory alignment should simplify adoption and foster growth.”
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Bottom line
Stablecoins offer crypto investors a digital asset with greater stability in market downturns, a medium of exchange to purchase other coins and more. However, it has yet to prove itself over the long term, and, as with any investment, it should be approached with caution.
Consider consulting a financial advisor for personalized advice based on your portfolio, and select a crypto exchange with stablecoin to begin investing.
Frequently asked questions
Is bitcoin a stablecoin?
No, bitcoin is not a stablecoin. While bitcoin is known for its volatility, a stablecoin provides greater price stability by being pegged to another low-risk asset, such as gold or fiat currency.
What is the most popular stablecoin?
Tether (USDT) is the most widely used stablecoin and ranks among the top cryptocurrencies by market capitalization at the time of writing. A popular alternative is the USD Coin (USDC), which is pegged to the US dollar.
Is USD a stablecoin?
USD, as in referring to the US dollar, is not a stablecoin. It’s the official fiat currency of the United States. However, the USD Coin (USDC) is a stablecoin that is pegged to the US dollar and issued by Circle.
What is the point of a stablecoin?
A stablecoin offers a lower-risk way of investing in the crypto market. Because stablecoins are designed to maintain a steady value, they allow investors to focus on long-term growth rather than the constant fluctuations of most cryptocurrencies.
Sources
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
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