What is a stablecoin in crypto?

Who hasn't heard about cryptocurrency at this point? Even large establishments have been slowly embracing this new type of "money". If you're familiar with crypto, you've probably heard the term stablecoins thrown around. A stablecoin is a type of cryptocurrency that is pegged or priced to match against fiat money for example. "Fiat money" is a currency established by a country/government entity such as the US Dollar, Canadian Dollar, or Euro to name a few. Some examples of stablecoins are USDT, USDC, DAI, and UST. These are all types of cryptocurrencies meant to match the US Dollar, basically 1UST = 1USD. The "stable" comes from the non-volatility of this coin's price compared to other cryptocurrencies. At the time of writing, Bitcoin's price was at $63,501.50. A month ago it was $40,386.62. Thats a 57% increase! But what can come up, can almost surely come down and this is the type of volatility that you won't get with stablecoins.

How do they work?

There are 3 ways of how stablecoins can mimic or match their price against fiat currency. Fiat-Collateralized, are backed by the underlying government currency. These types of stablecoins are more central in nature meaning there is a central or a single controlling entity that handles these types of coins. Crypto-Collateralized, which are stablecoins collateralized against other cryptocurrencies. These are generally more decentralized (no single entity in control) and often over collateralized to take into account the volatility of the cryptocurrencies its collateralized from. Algorithmic, are stablecoins that rely on "smart contracts" or software/code to maintain its stability. These are oversimplifications of these and theres so much more going behind the scenes. Just know that these are meant to reduce their volatility compared to other cryptocurrencies such as Bitcoin and Ethereum and keep a 1:1 match between fiat prices and their own.

What can I do with them and why use them?

The most straightforward use of stablecoins today is to purchase other coins such as Bitcoin, or Ethereum. Another is global remittance. In the old days, you'd have to convert your countries currency into the receiving parties currency. A bank visit or multiple pieces of info such as routing#, account#, etc... are normally required with fees and time delays factored into the entire process. Now you can send them UST using an app at little to no cost which they can then receive within minutes. From there, they can then do the conversion to fiat money themselves. Easy, fast and cheap! Another example, as a business, accepting stablecoins for your products and services can save you from fees from traditional payment processors. Ask any retailer, these can be huge.

Next steps

If you're thinking about getting started with cryptocurrency, but worried about the price swings and volatility, then stablecoins is the way to go. Please note there is always risk in dealing with cryptocurrencies. Some are much smaller than others but always DYOR (Do Your Own Research). Sign up with Coinbase to get started real fast and easy. You can even do recurring purchases with as little as $5 a week. Your morning coffee most likely amounts to more than that. This is what I recommend to my friends and family looking to enter this new and exciting type of financial asset.