Stablecoin

A stablecoin is a cryptocurrency pegged to a fiat currency such as the dollar, designed so one coin stays near one dollar. It serves as a fixed reference point in a volatile crypto market.

There are two main ways to hold the peg: keeping actual dollars or government bonds equal to the amount issued, or backing it with other cryptocurrencies and adjusting supply algorithmically.

Most real use happens inside exchanges. Cashing out of crypto takes time, so traders park value in stablecoins instead. They are also used for cross-border transfers.

The risk is whether the backing genuinely exists. When an issuer turns out to lack proper reserves, the value collapses quickly — an algorithmic stablecoin of considerable size unravelled in days.

So when choosing one, check the composition of the reserves and whether they are independently audited. The phrase pegged to the dollar guarantees nothing by itself.