A stablecoin is a digital currency whose value is pegged to an external reference, such as a real-world asset. Pegging the market value of the stablecoin against a more price-stable asset protects this type of digital asset from experiencing the high volatility that other crypto assets in the market face.
Stablecoins' prices are pegged to more stable assets, including fiat currencies, commodities, or other financial instruments such as exchange-traded funds (ETFs). Most of the popular stablecoins in the crypto market are pegged against the US dollar, including Tether (USDT), USD Coin (USDC), PayPal USD (PYUSD), and TrueUSD (TUSD).
Stablecoins can serve as a bridge between the world of cryptocurrencies and traditional financial markets, giving users the price stability of real-world financial assets combined with the convenience of cryptocurrency technology. The lower volatility of stablecoins makes them convenient digital assets to invest in or use, especially for making digital payments or as base currencies to trade other cryptocurrencies on crypto exchanges.