Price volatility can be a real barrier: it is hard to pay with a currency that can change in value by double digits within a week. Stablecoins try to solve this problem. They are tokens designed to hold a steady value, most often equal to one dollar.
Where the stability comes from
- Backed by currency. Every token is matched by a reserve held at a bank. Trust depends on whether that reserve really exists.
- Backed by cryptocurrencies. An oversized deposit in other assets protects the peg.
- Algorithmic. Supply steers the price through rules written in code. Historically, this is the riskiest kind.
What to ask before you use one
Who issues the token, what backs it, and whether the reserves are independently verified. A stablecoin is only as trustworthy as its backing.
"Stable" does not mean "risk-free". It only means: designed to hold its value, for as long as the mechanism works.
Stablecoins are today one of the most common entry points into web3. It is worth understanding exactly what you are holding in your wallet.