Cryptocurrencies are infamous for wild price swings. Bitcoin, for example, has ranged from a few thousand to over $50,000, then dropped dramatically. Stablecoins aim to bridge that gap by combining the transparency and programmability of crypto with the relative stability of traditional assets.

A stablecoin is a digital token programmed to maintain a steady value by pegging itself to an underlying asset (e.g. fiat currency, commodity, or another crypto). The goal: reduce volatility so the token can function more reliably for transactions, savings, or financial contracts.

Types of stablecoins

Stablecoins fall mainly into two categories: collateralized and algorithmic.

• Fiat-backed tokens are pegged to a national currency and issued against cash reserves held by a centralized entity. They offer simplicity but introduce reliance on trusted custodians.
• Crypto-backed stablecoins rely on over-collateralization with volatile cryptocurrencies, managed via smart contracts that liquidate collateral if necessary.
• Commodity-backed options tie their value to assets like gold, combining digital liquidity with traditional store-of-value appeal.
• Algorithmic stablecoins use code to expand or contract supply depending on market demand, attempting to maintain price stability without reserves. While innovative, they are prone to collapse if confidence erodes.

Five major stablecoins

1. Tether (USDT). The oldest and most traded stablecoin, pegged 1:1 to the US dollar. Issued by Tether Limited, it has faced scrutiny over transparency and reserve audits. Despite controversies, it dominates global trading volumes, functioning as a primary liquidity provider on most crypto exchanges.

1. USD Coin (USDC). Created by Circle and Coinbase, USDC is fully backed by cash and short-term US Treasuries. Unlike Tether, it emphasizes transparency with monthly attestations by independent auditors. Widely adopted across exchanges, wallets, and DeFi protocols, USDC is also popular among institutions thanks to its regulatory compliance.

1. Dai (DAI). A decentralized stablecoin governed by MakerDAO. DAI is backed by over-collateralized crypto assets such as ETH and USDC, managed through autonomous smart contracts. If collateral value falls, assets are liquidated to maintain stability. 

1. Binance USD (BUSD). Issued by Binance in partnership with Paxos, BUSD is a regulated stablecoin approved by the New York State Department of Financial Services. Fully backed by USD reserves, it is integrated across Binance’s ecosystem and widely used for trading, lending, and staking. Regulatory oversight provides additional trust compared to some rivals.

1. Paxos Gold (PAXG). A commodity-backed stablecoin tied to physical gold. Each token represents ownership of a fraction of a London Good Delivery gold bar stored in secure vaults. Holders can redeem PAXG for physical gold or trade it as a digital asset, combining the security of a centuries-old store of value with blockchain efficiency.

Final thoughts

Stablecoins bridge traditional finance and decentralized networks. From fiat-backed tokens like USDT and USDC to decentralized models like DAI and asset-pegged options like PAXG, they are now central to digital finance. For organizations entering this space, professional Stablecoin Development Services provide guidance on regulation, security, and technical design. Despite challenges, stablecoins’ growing role in payments, trading, and DeFi indicates they will continue to serve as a foundation of the blockchain economy.