Cryptocurrencies like Ethereum are known to be volatile. Their prices can fluctuate wildly over a given period of time. To help deal with such price volatility, cryptocurrencies or tokens known as stablecoins were developed.
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🕒 6:55 PM
📅 May 13, 2025
✍️ By Junglekidd
Stablecoins are altcoins that mimic the price stability of traditional or fiat currencies like the U.S. dollar.
They are altcoins designed to maintain a stable price over time.
Stablecoins are stable because they "peg" their value to an underlying asset. The underlying asset varies depending on the specific stablecoin. Most are tied to the U.S. dollar, but there are stablecoins linked to other fiat currencies.
Stablecoins initially rose in popularity because they were easy to transfer between different crypto exchanges.
During early years of trading, many crypto exchanges found it difficult to get banking access so you weren't able to trade crypto/fiat pairs, like BTC/USD.
A way around this was to offer the ability to trade crypto against a stablecoin that was pegged to USD, like BTC/USD.
This removed the need to have to deposit USD in order to trade. Now, you just needed a stablecoin. In this case, Tether (USDT), which traders could easily amd quickly transfer from another exchange that they had an account with.
Stablecoins are cryptocurrencies that maintain a "peg" or the same price as an underlying asset.
"Pegging" one asset to another means that you always ensure the two values stay the same.
Most stablecoins are pegged at a 1:1 ratio with traditional currencies, such as U.S. dollar.
Other Stablecoins are pegged to other kinds of assets, such as gold and even othe cryptocurrencies.
To maintain this "peg" , stablecoins can be backed by external assets or use algorithms that dynamically adjust their supply relative to their demand at a given time.
Their purpose is to be able to use a Cryptocurrency without the actual volatility. They allow to (digitally) store funds at a stable price without the need for a bank account.
Traders use stablecoins to safely store value when the crypto market is really volatile and protect themselves against the price swings.
Stablecoins aslo make it easier for traders to transfer funds between crypto exchanges, which is useful since some exchanges do not offer fiat currency deposits or withdrawals. They are also much easier to move around than fiat currency within the crypto universe.