A cryptocurrency with extremely low volatility, sometimes used as a means of portfolio diversification. Examples include gold-backed cryptocurrency or fiat-pegged cryptocurrency.
A stablecoin is a cryptocurrency that lives on a blockchain which is pegged to a fiat currency. Stablecoins are stable because they typically have a fixed value to ensure the price does not fluctuate depending on market speculation. It is meant to have a constant price that is as close to one-to-one transferable to its fiat version as possible.
Stablecoins maintain their price peg to fiat currencies by being collateralized by other assets. There are four general methods for how stablecoins are collateralized:
A fiat-backed stablecoin means that the reserves are composed of traditional fiat currencies and short-term treasury securities. These are the most common kinds of stablecoins and have the largest market capitalizations which include USDT (Tether) and USDC (issued by Circle). The companies that issue fiat-backed stablecoins maintain central control over the supply side of the coin.
A commodity-backed stablecoin is collateralized by nonfiat assets like precious metals. An example of a commodity-backed stablecoin is PAXG (PAX Gold), where its value is tied directly to the real-time market value of physical gold.
Algorithmic stablecoins are collateralized by smart contracts that react to the supply and demand of the market. In addition to the stablecoin itself, there is generally another cryptocurrency that acts as a bond that helps it maintain its peg. When the stablecoin is priced below its peg (supply is greater than demand), the purchases of bond tokens can boost the price back up to its peg. When the stablecoin is priced above the peg (supply is less than demand) the protocol can mint and distribute new stablecoins to regulate the price.
The Terra stablecoins (UST) was an example of an algorithmic stablecoin along with its bond token, LUNA. This stablecoin lost its peg, resulting in the loss of hundreds of billions of dollars of value in 2022.
The issuer of USDT, which was launched in 2014. It was initially released as “Realcoin” before being rebranded to “Tether.” Tether is the largest stablecoin by market cap (as of March 2025) and is available on most cryptocurrency exchanges as well as across Ethereum and layer 2 blockchains, Cosmos, TRON, EOS, Solana, Tezos, and Aptos networks.
The issuer of USDC and EURC. It launched USDC in 2018 in collaboration with Coinbase and it is the second largest stablecoin by market capitalization (as of March 2025). It is available on most cryptocurrency exchanges as well as across Ethereum and its layer 2 blockchains, Algorand, Aptos, Available, Hedera, NEAR, Polkado, Stellar, and Sui.
PayPal announced the issuance of its own proprietary stablecoin, PYUSD, in 2023 via Paxos. It is a stablecoin that exists only within the PayPal app ecosystem.
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International remittances: with the virtually instant settlement provided by stablecoins, they substantially reduce remittance fees, estimated to reduce remittances fees by 80% compared to traditional processes.
Peer-to-peer payments: stablecoins provide an alternative to banks in international money transfers, streamlining payments and enabling fast peer-to-peer transfers without the need for traditional banks. They are available 24/7 and remove any delays typically associated with traditional banks.
Trade finance: stablecoins bypass bottlenecks within international trade transactions with similar benefits to international remittances.
Payroll: stablecoins can modernize a business’ backend operations of payroll systems, facilitating faster payments to employees and increasing the accuracy of financial reports.
Megan Knab has more than ten years of experience at the intersection of crypto and finance. Today, Megan serves as the CEO and Founder of Franklin, a platform for businesses to manage their on and offchain financial operations in one place.
Prior to creating Franklin, Knab worked at industry leading companies such as ConsenSys, DriveWealth, and most recently, Serotonin, a Web3 marketing firm and product studio, where she served as Vice President of Finance.
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