Stablecoins are a type of cryptocurrency linked to an asset like the U.S. dollar that doesn’t change much in value.
The majority of the dozens of stablecoins that currently exist use the dollar as their benchmark asset, but many are also pegged to other fiat currencies issued by governments like the euro and yen. As a result, the price of stablecoins fluctuates very little, unlike high-profile cryptocurrencies like bitcoin and ethereum that are prone to sudden ups and downs.
Originally, stablecoins were primarily used to buy other cryptocurrencies, like bitcoin, because many cryptocurrency exchanges didn’t have access to traditional banking. They are more useful than country-issued currencies because you can use them 24 hours a day, seven days a week, anywhere in the world – without relying on banks. Money transfers take seconds to complete.
Another useful feature of stablecoins is that they can work with so-called smart contracts on blockchains, which, unlike conventional contracts, require no legal authority to be executed. The code in the software automatically dictates the terms of the agreement and how and when money will be transferred. This makes stablecoins programmable in ways that dollars can’t be.