Such cryptocurrencies are classified depending on the collateral

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Stablecoins have the advantages of cryptocurrency (transparency, reliability, immutability, digital wallets, fast transactions, low fees, and privacy) and are as stable and trustworthy as traditional currencies (the US dollar or the euro).

Initially, cryptocurrency owners used stablecoins to save money in case of a market crash. If bitcoins fell in price, they could be converted in just a few minutes and avoid losses. Without stablecoins, bitcoins would have to be converted into traditional currencies. Such transactions are not possible on every platform, and they incur significant fees.

In addition, stablecoins are useful in cases where fast and secure international payments are needed: both for a migrant worker transferring money to his family, and for a large business that needs a cheap and efficient way to pay with foreign suppliers.

A decentralized, reliable, and stable system will have many applications, from cross-border lending to financial planning.

Types of stablecoins


Pegged to fiat currencies

The most common type of stablecoin is one that is backed by the US dollar, euro, or pound sterling. If someone wants to cash out a stablecoin, the entity that manages it will take the corresponding amount of traditional money and transfer it to their bank account. The equivalent amount of stablecoin will be destroyed or removed from circulation.

The most common stablecoin of this type is Tether (USDT). It is the third-largest cryptocurrency by market capitalization, with a daily trading volume higher than any other cryptocurrency, even Bitcoin. In January 2021, this currency accounted for about 75% of the stablecoin market.

USD Coin (USDC) is also pegged to the US dollar and is gradually gaining market share. Inflation reached 15% in January 2021. In December 2020, its parent company Circle announced a partnership with Visa to issue corporate credit cards based on USD Coin.

There are stablecoins backed by other fiat currencies: XSGD (Singapore dollar), EURS (euro), and even Candy (Mongolian tugrik).

Tied to commodity markets

The value of these cryptocurrencies is backed by fungible assets, such as precious metals, most often gold, as well as oil or real estate. Typically, owners of such stablecoins own something that has real value. Potentially, the value of these assets may even increase over time.