Stablecoin definition

A stablecoin is a cryptocurrency designed to hold a steady value by pegging itself to a reference asset, most often a fiat currency such as the US dollar. It produces a crypto unit that aims to trade at or near a fixed price, typically 1 unit to 1 dollar.

The peg is maintained in different ways. A fiat-backed stablecoin holds reserves, such as cash and short-term securities, equal to the coins in circulation, so each coin can in principle be redeemed for the underlying currency. An algorithmic stablecoin instead uses rules and supply adjustments, expanding or contracting the coin count, to push the price back toward the peg.

A volatile cryptocurrency like Bitcoin is the contrast: its price floats freely on supply and demand and can swing sharply in a single day. A stablecoin deliberately suppresses that movement, which makes it a common way to hold value or move funds between trades without converting back to fiat.