Stablecoin
A stablecoin is a cryptocurrency designed to hold a steady value, usually by tracking a currency such as the US dollar one-for-one.
Most crypto assets swing too much in price to be useful for payments or for parking funds between trades. Stablecoins exist to fill that gap, offering the settlement speed of a blockchain with a value that is meant to stay put.
Fiat-backed stablecoins are the most common. The issuer holds reserves — cash and short-term government debt — and promises to redeem each token for one unit of the reference currency. The credibility of that promise rests entirely on the quality of the reserves and the transparency of the attestations covering them.
Crypto-collateralised stablecoins take a different route, locking up more crypto than the tokens they issue to absorb price swings. Algorithmic designs attempted to hold a peg through supply adjustments rather than collateral; several failed severely, and the category is treated with caution as a result.
The peg is a design goal, not a law of nature. Stablecoins have traded away from their reference value during periods of stress, when doubts about reserves or redemption capacity surfaced. Regulators in several major jurisdictions now impose reserve and disclosure requirements on issuers.
TrustFinance News covers stablecoin regulation and the exchanges that list them, including the licence conditions under which they operate.