Definition
Stablecoins maintain price stability through various mechanisms: fiat-backed (USDC, USDT—held 1:1 in bank deposits), crypto-backed (DAI—over-collateralized by crypto), and algorithmic (maintaining peg through supply adjustments). They serve as the primary medium of exchange in DeFi, providing a stable store of value without requiring conversion to traditional currency. Total stablecoin market cap exceeds $130 billion.
lightbulb Example
A trader sells BTC for USDC (a fiat-backed stablecoin) during volatile markets, preserving value at $1.00 per coin. They later deploy USDC into a DeFi lending protocol earning 5% APY while waiting for better crypto entry points.
verified_user Key Points
- Designed to maintain $1.00 value
- Fiat-backed (USDC, USDT), crypto-backed (DAI), algorithmic
- Primary medium of exchange in DeFi
- Depegging events can cause significant losses