Exploring Stablecoins

Not all stablecoins are the same as they employ different mechanisms to keep their peg against USD. There are three types of stablecoins—fiat-collateralized, crypto-collateralized, and algorithmic stablecoins. Most stablecoins use the fiat-collateralized system to maintain their USD peg.

The prices of cryptocurrencies are extremely volatile. In order to mitigate this volatility, stablecoins pegged to other stableassets such as the USD were created. Stablecoins help users hedge against this price volatility and allow for a reliable medium of exchange. Stablecoins have since quickly evolved to be a vital component of DeFi that is piv