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What are stablecoins?
What are stablecoins?

Stablecoins are cryptocurrencies or tokens that are backed by the value of a different asset to keep the price stable.

Updated over a week ago

Everything you need to know about stablecoins.

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What are stablecoins?

Stablecoins are cryptocurrencies or tokens designed to resist market movements and maintain a target price. This can be achieved by various means, including backing the stablecoin with physical assets, crypto, or maintaining its value algorithmically.

Stablecoins were developed to hold a stable value. This is in contrast to the price volatility of many cryptocurrencies.

In Exodus, you can buy, sell, and swap supported stablecoins.

Below we'll look at some of the different types of stablecoins.

What are the different types of stablecoins?

Fiat-collateralized stablecoins

Fiat-collateralized stablecoins are backed by fiat currencies or currencies issued by national governments like the dollar and euro.

Some examples of popular fiat-collateralized stablecoins include; Tether USD, USD Coin, Paxos USDP, and Gemini Dollar.

Crypto-collateralized stablecoins

Crypto-collateralized stablecoins are backed by other cryptocurrencies.

The most popular crypto-backed stablecoin today is DAI. Every DAI token is backed by Ethereum-based assets, which ensures all DAI in circulation is fully collateralized.

Commodity-collateralized stablecoins

Commodity-collateralized stablecoins are backed by commodities like gold, precious metals, or real estate.

Paxos Gold (PAXG) is a popular commodity-backed stablecoin. Each PAXG token is backed by one fine troy ounce of a London Good Delivery gold bar.

Algorithmic stablecoins

Unlike collateralized stablecoins, algorithmic stablecoins rely on algorithms to control the supply of tokens in the marketplace as a way to maintain their price. Algorithms manage price stability by increasing token supply if the price increases above the target and reducing token supply if the price falls below the target.

Why use stablecoins?

Protection against volatility

Stablecoins can protect against price swings.

This feature is useful for various reasons like the following:

  • Cryptocurrency traders might want to protect their gains by switching to a stablecoin if prices drop.

  • Business owners, such as cafe owners, might not want to sell a cup of coffee for $2 in digital currency to have that $2 turn into $1 an hour later.


Sending international payments can be costly and slow.

For those who have to send money internationally to friends and family, stablecoins can be an alternative to traditional methods, as sending stablecoins is fast and sometimes have lower fees.

What are the risks of stablecoins?

Stablecoins do come with certain risks:

  • They don’t always maintain their price peg.

  • The currency or asset they’re pegged to can decrease in value.

  • Stablecoins carry counterparty risk since holders have to trust someone else to fulfill a promise, like keeping sufficient USD reserves.

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