stablecoin

stablecoin

A cryptocurrency whereby each coin is backed by something else. For example, one token of an asset-backed stablecoin such as Digix (DGX) and OneGram (OGC) is equal to one gram of gold. Gemini USD (GUSD) and Tether (USDT) are equal to one U.S. dollar, which makes them fiat-backed (government-backed) cryptocurrencies.

Stablecoins Save Time
Stablecoins are widely used as a short-term trading mechanism. For example, instead of selling Bitcoin or any other amount of crypto for dollars, the crypto sale is converted to a stablecoin, which is immediately available to trade with any other crypto. If the sale were turned into dollars, it might take a couple days to actually have the funds in the user's bank account and be available to purchase some other crypto.

Crypto-Backed Stablecoins
It sounds strange, but crypto-backed stablecoins are collateralized by another cryptocurrency. Because crypto is so volatile, the collateral held is much higher than the value of the tokens. For example, for every thousand dollar's worth of stablecoins issued, $2,000 of the backing crypto might be held in reserve. See cryptocurrency, Gemini Trust and Diem.

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