1. What is a stablecoin?

A stablecoin is a digital currency linked to a “stable” reserve asset, such as the US dollar or gold. Stablecoin’s purpose is to reduce volatility compared to unpegged cryptocurrencies such as Bitcoin.

Because their prices are pegged to a reserve asset such as the US dollar or gold, stablecoins bridge the worlds of cryptocurrency and everyday fiat currency. Compared to Bitcoin, this significantly reduces volatility, resulting in the form of digital money better suited to everything from day-to-day commerce to making transfers between exchanges.

Combining traditional asset stability with digital asset flexibility has proven to be extremely popular. Stablecoins like USD Coin (USDC) have attracted billions of dollars in value, becoming some of the most popular ways to store and trade value in the crypto ecosystem.

2. Why are stablecoins important?

Take the USDC stablecoin, for example. Dollar-denominated assets back it in segregated accounts with US-regulated financial institutions with at least equal, fair value to the USDC in circulation. An independent accounting firm attests to (i.e., publicly verifies) such accounts.

USDC, like many other stablecoins, is currently decentralized on the Ethereum blockchain. Stablecoins lack the volatility of non-pegged cryptocurrencies while retaining some of their most powerful features:
Stablecoins are open, global, and accessible to anyone on the internet, 24/7
They’re fast, cheap, and secure to transmit
They’re digitally native to the Internet and programmable.

3. What are stablecoins capable of?

Reduce volatility.
The value of cryptocurrencies such as Bitcoin and Ether fluctuates dramatically, sometimes even by the minute. An asset linked to a more stable currency can provide buyers and sellers with confidence that the value of their tokens will not rise or fall unexpectedly in the near future.

Trade or save assets.
Stablecoins do not require a bank account to hold, and they are simple to transfer. The value of stablecoins can be easily transferred worldwide, including where the US dollar is challenging to obtain or where the local currency is unstable.

Earn interest.
There are easy ways to earn interest (typically higher than a bank’s offer) on a stablecoin investment.

Cheap transferring fee.
People could sned as much as a million dollars worth of USDC with less than a dollar transfer fee.

Transfer money everywhere.
Stablecoins like USDC are an excellent choice for sending money anywhere globally because of their fast processing and low transaction fees.