## Important Things About Stablecoins: From Basics to Advanced

Stablecoins have become an essential part of the modern cryptocurrency ecosystem. Unlike Bitcoin and traditional digital currencies that are prone to price volatility, stablecoins are designed to maintain a stable value through various peg mechanisms. From investors seeking to minimize risk to financial institutions looking for new payment solutions, stablecoins have demonstrated their value in building a sustainable (DeFi) decentralized financial system.

### How Do Stablecoins Work?

Stablecoins are digital assets designed to peg their value to an external reference — this could be fiat currency like the US dollar, commodities like gold, or even more complex financial instruments.

Their main operational mechanisms depend on the type of stablecoin:

**Asset-Backed Stablecoins**: These are backed by actual reserves. For example, each USDT is backed by one US dollar held at financial institutions.

**Non-collateralized Stablecoins (Non-collateralized stablecoins)**: This type relies on mathematical algorithms to automatically adjust supply and demand. When prices rise above the target, the system increases supply; when prices fall, it reduces supply to maintain balance.

### Types of Stablecoins on the Market Today

#### Stablecoins Backed by Fiat Currency

**Tether (USDT)**: The largest stablecoin by market capitalization with over $83 billion USD as of August 2023, USDT accounts for more than 68% of the global stablecoin market share. This token operates on multiple blockchains including Ethereum, TRON, Solana, and Avalanche, offering high liquidity and broad accessibility.

**USD Coin (USDC)**: Managed by the Center Consortium — a partnership between Circle and Coinbase — USDC is the second most popular stablecoin. Each USDC is fully backed by a reserve of USD including cash and short-term Treasury bonds. With a market cap of over $26 billion USD, USDC is available on Ethereum, Avalanche, TRON, Solana, and many other blockchains.

#### Stablecoins Backed by Digital Assets

**Dai (DAI)**: Created by MakerDAO, a decentralized autonomous organization (DAO), DAI is a widely used decentralized stablecoin in the DeFi ecosystem. With over 400 integrated applications, DAI has a market cap of more than $5.3 billion USD and ranks third among the largest stablecoins.

**Stablecoins Without Collateral - USDD and FRAX**: USDD, developed on the TRON blockchain, uses a Peg Stability Module that allows 1:1 exchange with other stablecoins. Meanwhile, FRAX is considered a "hybrid algorithm stablecoin" — combining partial collateral mechanisms with algorithms to maintain stability.

#### Stablecoins Backed by Commodities

**Tether Gold (XAUT)** and **Pax Gold (PAXG)**: These stablecoins provide a secure way to own physical gold through blockchain technology. Each token represents one troy ounce of gold stored in audited vaults.

### Benefits of Using Stablecoins

**Price Stability**: This is the core benefit, allowing stablecoins to serve as a better medium of exchange than Bitcoin and Ethereum for daily transactions.

**Market Volatility Hedge**: During bear markets, many investors quickly convert to stablecoins to protect assets. Data shows that on-chain stablecoin volume increases significantly during downturns.

**DeFi Integration**: Stablecoins play a key role in decentralized finance, used as collateral in lending protocols and to provide liquidity on decentralized exchanges.

**Global Accessibility**: Stablecoins transcend geographical barriers, enabling borderless transactions for those without access to traditional banking services.

**Passive Income Opportunities**: By staking stablecoins on DeFi platforms, you can earn attractive yields over time.

### Notable New Stablecoins

**PayPal USD (PYUSD)**: The launch of a stablecoin by PayPal indicates increasing acceptance from major financial companies.

**First Digital USD (FDUSD)**: Launched in June 2023, FDUSD is a fully redeemable stablecoin backed by USD, providing higher trust for users. After a major exchange ceased support for the old stablecoin, FDUSD quickly became a preferred alternative and currently has a market cap close to $400 million USD.

**Euro Coin (EUROC)**: Issued by Circle in May 2023, EUROC offers stability pegged to the euro on Ethereum and Avalanche blockchains.

### Market Figures for Stablecoins

As of August 2023, CoinMarketCap reports over 140 types of stablecoins in circulation. The market is experiencing rapid growth with new stablecoins continuously emerging, from well-known players like Tether to newcomers from major financial institutions.

### FAQ

**What was the first stablecoin?**
Tether (USDT), launched in 2014, is considered the first stablecoin maintaining a 1:1 peg with the US dollar.

**Which stablecoin is the best?**
There is no universally "best" type. USDT, USDC, DAI, and USDD each have their own advantages depending on specific investor needs.

**Are stablecoins regulated?**
Regulatory bodies worldwide, including national monetary authorities, are actively developing frameworks for stablecoins, focusing on reserve requirements and transparency.

**Can stablecoins collapse?**
There is a risk if they are not properly backed and managed. The collapse of UST (m a non-collateralized stablecoin) raised questions about the stability of such assets.

**Can you store stablecoins on hardware wallets?**
Yes. Hardware wallets like Ledger provide secure offline storage solutions for stablecoins.

### Conclusion

Stablecoins have proven to be vital in building a sustainable and accessible cryptocurrency financial system. By addressing price volatility, they create a reliable bridge between fiat currencies and digital assets, expanding the potential applications of cryptocurrencies in everyday life. As blockchain technology continues to evolve, stablecoins will remain central in shaping the future of finance.