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Stablecoins are a special class of cryptocurrencies designed to reduce volatility. While the price of Bitcoin or Ethereum can fluctuate by 10-20% in a single day, stablecoins aim to keep their value in line with a specific stable asset (such as the US dollar or gold).
Simply put, they combine the advantages of cryptocurrencies (speed and global transactions) with the stability of fiat currencies.

1. How do stablecoins work? (Types of Stablecoins)

Fiat-collateralized is the most popular method. Here, an equivalent amount of real currency (such as dollars) is deposited in a bank against each digital token. Example: USDT, USDC. If 1 billion USDT is in the market, then 1 billion dollars must be in reserve behind it. Crypto-collateralized is where another cryptocurrency (such as Ethereum) is held as collateral instead of dollars. However, over-collateralization is required because crypto prices fluctuate. Example: DAI. To get $1 worth of DAI, you might have to deposit $1.5 worth of Ethereum. Algorithmic: Not backed by any direct asset. Instead, smart contracts and algorithms are used to increase or decrease the supply of the token in the market to keep its price at $1. Warning: This method is very risky (e.g. Terra/UST crash).

2. Popular Stablecoins

Features	Tether (USDT)	USD Coin (USDC)
Founders	Tether Limited	Centre Consortium (Circle & Coinbase)
Market Position	It is the most widely used and liquid stablecoin in the world.	The second largest and is known for its transparency.
Transparency	There are occasional controversies or audit issues with reserves.	Very transparent; publishes regular audit reports and complies with US law.
Usage	Most commonly used in trading pairs and peer-to-peer (P2P) transactions.	More popular in decentralized finance (DeFi) and institutional use.

3. Why are stablecoins so popular?

When the crypto market falls too much, traders quickly sell their Bitcoin or Ethereum and convert them into USDT or USDC. This does not reduce the value of their capital. Sending money abroad through traditional banking channels takes a lot of time and fees. Using stablecoins, it is possible to send the equivalent of a dollar to any part of the world in an instant for a very small fee. Stablecoins are the main basis for lending (lending) and borrowing (borrowing) on DeFi platforms. Here, it is possible to earn up to 10-15% profit or interest annually by depositing or staking stablecoins, which is much higher than in a regular bank account. It is difficult to buy coffee with Bitcoin because the price of Bitcoin changes all the time. But since the price of stablecoins is fixed, it can be the main means of digital payment in the future.

4. Risks and limitations

The USDT or USDC regulatory body can freeze or block any wallet address if it wants. If the regulatory body does not have enough dollar reserves, the token can lose its value (which is called De-pegging). Governments in various countries are trying to impose strict regulations on stablecoins, which could affect their future.

Conclusion

Stablecoins are like the 'liquidity' or blood circulation of the crypto ecosystem. It is almost impossible to imagine modern crypto trading and DeFi without them. They act as a strong bridge between fiat and crypto. Today's discussion concludes here. I hope you've found it interesting. Please share your thoughts on today's topic. Prayers for everyone. May everyone be well. Amen.

Me behind the camera & keyboard

I’ve always loved sharing my passions with you — from crypto and movie reviews to photography, storytelling, and blogging. Now, continuing that creative journey, I’ve stepped into a brand-new world — Gaming ! 🎮 | 🎥 On my YouTube channel Bokhtiar The Survivor — I’m consistently working to bring you the raw thrill of my gaming experiences — the emotions, the excitement, and those unforgettable moments that make every game feel alive.