Stablecoin
A token engineered to hold a fixed value - usually one US dollar - backed by reserves or algorithm.
A token engineered to hold a fixed value - usually one US dollar - backed by reserves or algorithm.
Stablecoins are dollars on a blockchain, and they exist because moving fiat between exchanges and wallets is slow. Fiat-backed models hold cash and short-dated treasuries in a reserve and let you redeem one-for-one; crypto-collateralised models lock up other assets at an over-collateral ratio and burn tokens when value moves; algorithmic models try to hold the peg with incentives instead of reserves. The category is only as safe as its weakest mechanism - the reserves are what you are actually buying exposure to.
Reserve quality is the diligence: audited attestations, the share held in treasury bills versus commercial paper, the bank holding the cash, and whether redemptions are open to anyone or only institutions. A peg that held for years can gap in an afternoon when reserve doubt arrives, and the de-peg propagates instantly to every protocol that used the token as collateral. For trading, stability is a feature; for saving, it is a claim on a counterparty.
Worked example
A $10,000 transfer settled in a fiat-backed stablecoin clears in minutes for cents, while the same wire arrives in one to three business days for a flat fee. The speed is real; the risk moved from the payment rail to the reserve behind the token.
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