What Are Stablecoins?
Read time 1 min
Quick Answer:
Stablecoins are crypto tokens designed to hold a steady value, usually one US dollar. They combine the speed of blockchains with a price that does not swing like other crypto assets.
Why stablecoins exist
Most crypto assets change price constantly, which makes them hard to use for everyday payments or for holding a balance you plan to spend. Stablecoins aim to fix that by tracking the value of a traditional currency.
How they keep their value
- Fiat-backed: the issuer holds reserves such as cash and short-term government bonds, and lets eligible customers redeem tokens for dollars. USDC and USDT work this way.
- Crypto-backed: tokens are backed by other crypto assets locked as collateral, usually worth more than the tokens issued.
- Algorithmic: supply is adjusted by rules rather than reserves. This model has failed in the past and carries the highest risk.
Where stablecoins are used
People use stablecoins to move value across borders quickly, to hold a dollar balance on-chain, and to pay. Businesses use them as a treasury asset and to settle payments with partners.
Risks to keep in mind
A stablecoin is only as reliable as what backs it. Reserves, issuer practices, regulation and the blockchain a token runs on all matter. A stablecoin can also temporarily trade below its target, an event known as a depeg.
Stablecoins in Tavate
Tavate lets you hold stablecoins in your non-custodial wallet and spend them with the Tavate card, where the merchant receives local currency.
