How Stablecoins Tackle Crypto Market Volatility?

Adekunle Joshua

Stablecoins are cryptocurrencies tied to stable assets like the U.S. dollar or gold, aiming to stabilize their prices and reduce volatility in the crypto market

They offer the benefits of cryptocurrencies while addressing the issue of price swings that make daily use and value storage challenging

Stablecoins facilitate easy trading without converting crypto back to fiat money since they maintain a 1:1 ratio with their pegged asset

The first type is fiat-collateralized stablecoins, backed by fiat money held by a central issuer or custodian, such as Tether (USDT) and USD Coin (USDC)

Crypto-collateralized stablecoins use digital assets as collateral, locked in smart contract vaults, with Dai (DAI) being a prominent example

Algorithmic stablecoins rely on algorithms and smart contracts to regulate token supply and maintain price stability, with Frax (FRAX) being a common example

Commodity-backed stablecoins are collateralized by commodities like gold, providing investment opportunities in otherwise inaccessible assets

Tether Gold (XAUT) and PAX Gold (PAXG) are leading examples of stablecoins backed by precious metals, injecting liquidity into illiquid asset classes.