The post The Role of Stablecoins in Modern Finance appeared on BitcoinEthereumNews.com.

Stablecoins are a type of cryptocurrency designed to maintain a stable value.   They are most commonly pegged 1:1 to fiat currencies. Stablecoin is a type of cryptocurrency intended to maintain a stable value by being pegged to a reserve asset, such as a fiat currency (USD, EUR), commodities (gold, silver), or other cryptocurrencies.  Unlike older cryptocurrencies such as Bitcoin and Ethereum, which have high price volatility, stablecoins offer price stability, hence serving as a good medium of exchange and a store of value. History of Stablecoins The idea of stablecoins came about as a reaction to the high volatility of early cryptocurrencies. The first large-scale stablecoin, Tether (USDT), was introduced in 2014, which was pegged to the US dollar. Since then, numerous stablecoins have been created, using different mechanisms to keep their peg. Furthermore, it facilitates the nexus between fiat currency and cryptocurrencies and grants the advantages of digital assets but in an insured way. It is utilized in remittances, trading, decentralized finance (DeFi), and payments as a credible alternative to banking systems. Types of Stablecoins It can be broadly divided into three categories depending on the manner in which they preserve their stability: Fiat-Collateralized Stablecoins – It is secured with fiat currency reserves held under the custody of a central custodian. Examples: Tether (USDT), USD Coin (USDC), and Binance USD (BUSD). Crypto-Collateralized Stablecoins – This category is backed by cryptocurrency reserves, typically overcollateralized to account for volatility. Example: DAI (backed by Ethereum and other assets). Commodity-Pegged Stablecoins – These are tied to the value of physical assets like gold, silver, or other tangible commodities Examples: PAX Gold (PAXG) and Tether Gold (XAUT). Algorithmic Stablecoins – It will be stabilized through algorithmic means, which will change the demand and supply and not keep reserves. Examples: TerraUSD (UST, before it went…

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Filed under: News - @ March 5, 2025 8:21 pm