In most cases, cryptocurrencies carry the risk of price volatility. But there is one cryptocurrency that is designed to maintain a constant value: stablecoins. Stablecoins are pegged to a stable asset, such as the U.S. dollar, to minimize price fluctuations and provide stability. This makes them ideal for use in those circumstances in which traditional cryptocurrencies, such as Bitcoin, might be too volatile.
There are two main types of stablecoins
- Fiat-collateralized stablecoin: These are backed by a reserve of fiat currency, such as the U.S. dollar.
- Crypto-collateralized stablecoin: These are backed by a reserve of cryptocurrency, such as Bitcoin or Ethereum.
In addition to these two main types, there are also central backed digital currencies (CBDCs). CBDCs are digital currencies that are issued and backed by a central bank. The main difference between stablecoins and CBDCs is that CBDCs are legal tender, whereas stablecoins are not. So, you can use CBDCs to pay taxes, but you cannot do so with stablecoins.
To date, there are approximately 200 stablecoins that have been launched. Some of the more popular ones include:
- USDC: USDC is a fiat-collateralized stablecoin that is backed by the U.S. dollar. It is issued by the CENTRE consortium, which is made up of Circle and Coinbase.
- USDT: Tether (USDT) is a digital currency that is pegged to the U.S. Dollar. Tether is one of the most popular stablecoins and is used by a number of exchanges as a way to trade between different cryptocurrencies.
- GUSD: The GUSD, or Gemini dollar, is backed 1:1 by the U.S. dollar. The coin is issued by the Gemini exchange and is one of the most popular stablecoins in use today.
- BUSD: Binance USD (BUSD) is a stablecoin that is pegged to the U.S. dollar and backed by Binance. BUSD is available on a number of different cryptocurrency exchanges, including Binance.com and Binance US.