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Definition: stablecoin


A cryptocurrency whereby each coin is backed by something else. For example, one token of an asset-backed stablecoin such as Digix (DGX) or OneGram (OGC) equals one gram of gold. Fiat-backed stablecoins Tether (USDT) and USD Coin (USDC) are pegged to one U.S. dollar.

Stablecoins Are "Theoretically" Stable
Stablecoins are a digital currency that have all the attributes of Bitcoin and other cryptocurrencies but without the price fluctuations that are so common.

How Do They Maintain Stability?
Two ways. A "reserved" stablecoin is backed by a reasonably stable asset such as dollars, Euros or precious metals. Such coins are said to be "pegged to the dollar" or "pegged to the Euro." If the stablecoin token starts to drop, dollars or Euros can be purchased to bring the coin into balance.

In contrast, the "algorithmic" method pairs the stablecoin with another crypto token, and the supply of either is increased or reduced (burned) to maintain equilibrium. Algorithmic stablecoins are not always so stable because they are backed by another crypto token, the price of which is always at the whim of the public. For example, a lot of buzz surrounded the algorithmic TerraUSD stablecoin because the Anchor DeFi marketplace was offering 20% interest. In May 2022, TerraUSD, which was paired with the LUNA token, dropped from $1 to less than 10 cents, causing the blockchain to lose its stablecoin status (see TerraUSD). See DAI, Tether, Gemini Trust, USDC, Diem and crypto burning.

 (From CoinMarketCap.com)

                   Billions/Market Cap
  Dollar-Pegged         (rounded)
   STABLECOINS       4/1/22   5/16/22

  Tether (USDT)        $81     $76

  USD Coin (USDC)      $52     $51

  Binance USD (BUSD)   $18     $18

  DAI                  $10     $6