A stablecoin is one type of cryptocurrency that is designed to maintain a fixed value over time. The value of a stablecoin is typically pegged to a specific real currency, often the U.S. dollar. In this setup, one unit of the cryptocurrency typically equals one unit of the real currency. Unlike highly volatile cryptocurrencies such as Bitcoin, the price of stablecoins is not meant to fluctuate.
Here’s how stablecoins work, what risks they present and how to check if a stablecoin is safe.
Stablecoins: What they are and how they work
A stablecoin is a cryptocurrency whose value is fixed to another asset, often currencies such as the U.S. dollar or the euro, though other assets are possible. This kind of crypto coin tracks the underlying asset, making its value stable over time, at least relative to the currency it’s pegged to. In effect, it’s as if the underlying asset has gone electronic, for example, like a digital dollar.
