Stablecoin – what is it in cryptocurrencies?

A stablecoin is a type of digital currency that is pegged to another asset. Most commonly, stablecoins are pegged to the US dollar. For example, the first and still the most popular stablecoin, USD Tether (USDT), is pegged to the US dollar, meaning that 1 USDT is equal to 1 dollar. There are also stablecoins pegged to other fiat currencies, precious metals, or other assets.

The purpose of stablecoins is to make cryptocurrency transactions more understandable and have a measure of value that is easy to navigate. They also provide stability, as high volatility is one of the main problems of cryptocurrencies. The value of cryptocurrencies can increase or decrease significantly within a few days, which can be unsettling for investors, especially those who previously traded in traditional markets.

When the cryptocurrency market experiences turbulence, stablecoins can serve as a refuge where one can easily "take cover" by converting their capital from Bitcoin and altcoins into stablecoins. When the storm settles, they can then start buying cryptocurrencies again. Although stablecoins are not completely risk-free, and their value may experience slight fluctuations, if they are backed by a reputable organization, it can be expected that they will soon stabilize.

Another significant function of stablecoins is that they serve as an entry point for large capital. It is more convenient to convert fiat money into stablecoins first and then gradually invest them in various cryptocurrencies.

With wider adoption of cryptocurrencies, stablecoins can acquire another important function - in countries where local currencies rapidly lose value, stablecoins can be used for transactions. Currently, the US dollar often serves this purpose, but if stablecoins pegged to natural resources replace it, it could make the situation in such countries more stable, according to some economists.

Stablecoins are important for cryptocurrencies as they facilitate broader adoption, and over time, they may become significant for the global economy as a whole.