Understanding Stablecoins

Stablecoin’s are a type of cryptocurrency that are linked to the US dollar, keeping its price steady.

Unlike most cryptocurrencies, stablecoins maintain their value which can be good for holding currency or transferring it. When crypto becomes too volatile investors can move their money into stablecoins to hedge against volatility.

For all DeFi applications, stablecoins are used to borrow, lend and trade. They also provide a “bridge” from fiat currencies, so entering and exiting the crypto market becomes easier.

How they work: They’re backed by reserves of fiat currencies, like the dollar. Not all Stablecoins are backed by a fiat currency, some can be backed by cryptocurrencies, like DAI which is backed by Ethereum and other cryptocurrencies.

The price stays stable by using Smart Contracts which adjust collateral levels depending on market conditions.