MakerDAO Considering Allocating Up to $600,000,000 in DAI in Arthur Hayes-Backed Stablecoin USDe

what is a stablecoin

CBDCs are not cryptocurrencies, nor are they Stablecoins – but they include elements of both. They are “stable”, since a CBDC is nothing more than a reengineered form of a national currency that incorporates some of the features that make cryptocurrencies so powerful. Working examples of this approach include Tether, Gemini, Paxos, and TrueUSD (pegged to the US dollar), Digix (backed by gold), and Globcoin (based on a basket of currencies). CBDCs are issued by a country’s central bank and can be thought of like a digital banknote. They are like a digital representation of the cash you already use.

  • International bank transfers are a prime example of one use case.
  • They are both new forms of digital money that have the potential to be used to pay for things.
  • The stable and efficient nature of fiat or gold-backed stablecoins inspires confidence in the crypto market.
  • The biggest example in this category is the DAI (DAI) algorithmic stablecoin, which is pegged to the U.S. dollar but is backed by Ethereum and other cryptocurrencies.
  • Stablecoins are one of the most practical use cases for blockchain technology.
  • On one hand, they operate on blockchains, which supporters believe provide greater security, transparency, cost efficiency, and speed.

Collateralized stablecoins that rely on fluctuating assets such as other crypto assets can be risky so always DYOR (do your own research). The interest in stablecoins is that they are built to withstand volatility in a way that other cryptocurrencies aren’t, but still offer mobility and accessibility. A more stable cryptocurrency is still decentralized, meaning it isn’t beholden to the rules and regulations of a centralized system.

What is an example of stablecoins?

Within centralized exchanges like Coinbase, they are often used as quote assets common across all trading pairs. Within DeFi, they can be used for yield farming in new decentralized applications. Often, they are used for interest rate arbitrage between DeFi and the traditional financial system.

Even the top cryptocurrency—Bitcoin (BTC)—is subject to significant fluctuations in value. Stablecoins are a special type of cryptocurrency designed to have a constant value over time, rather than fluctuating wildly like many other cryptos. They achieve this by tying their value to another more stable asset, what is a stablecoin like the US dollar. It is the first stablecoin to programmatically control minting with instant on-chain verification of USD reserves held off-chain. TUSD’s reserves are monitored using Chainlink Proof of Reserve so that holders can autonomously verify that their TUSD is backed by USD held in reserves.

Stablecoins offers stability in a volatile market

Crypto investors or traders often turn to backed stablecoins under a volatile market climate. Turning to stablecoins allows them to stay in the cryptocurrency market and enables them to move faster between trades without waiting days to transfer from fiat money. To buy stablecoins you’ll need an account with a crypto exchange or a digital wallet where you can buy crypto directly. Some services may not be available in all locations, so be sure to check whether the options you want are available where you live. ( Exchanges like Coinbase may offer some stablecoins, but such centralized exchanges may list fiat-backed versions only. For more options, you could use a decentralized exchange to swap any existing tokens for most stablecoins.

what is a stablecoin

This stability is usually achieved by pegging the stablecoin’s value to a reserve of assets. For example, if a stablecoin is pegged to the US dollar, the issuer of the stablecoin holds an equivalent amount of dollars in reserve. This means that for every stablecoin issued, there is a real dollar backing it, which helps to maintain its price stability.

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This can range from paying for coffee to cross-border remittances to settling large trades. Bitcoin is a type of cryptocurrency that is known for its volatility, meaning its price frequently goes up and down based on market dynamics. Stablecoins, on the other hand, are designed to maintain a stable value relative to a specific asset or a pool of assets.

what is a stablecoin

In fact one of the main of objectives of Central Banks like the Federal Reserve is to maintain price stability. By far the most common denomination of stablecoin is the US Dollar. The first and still the biggest stablecoin by market cap today is Tether (USDT), launched in 2014.