What is a stablecoin? Understand stablecoins in one article!
Jul 29, 2025 pm 01:03 PMStablecoins are special cryptocurrencies with value pegged to fiat currencies such as the US dollar or commodities such as gold, aiming to solve the price fluctuations of mainstream cryptocurrencies such as Bitcoin. Understanding how and types of stablecoins work is crucial to trading, investing, and preserving value in the crypto world.
Other mainstream Bitcoin exchanges in 2025:
Ouyi okx :
Binance binance:
Huobi htx:
What is a stablecoin and its importance
The core goal of Stablecoin is "stability". Unlike Bitcoin or Ethereum, where prices fluctuate, a stablecoin pegged to the dollar will always be anchored at around $1. This stability makes it an indispensable cornerstone in the crypto ecosystem.
Its importance is mainly reflected in three aspects:
Hedging tools: When the market fluctuates violently, investors can convert other crypto assets into stablecoins to lock in profits or avoid potential downside risks without withdrawing funds from the crypto market.
Trading medium: Stablecoins are the most commonly used pricing and trading units in cryptocurrency exchanges. Using stablecoins to trade can make cost and benefits more intuitively calculate, simplifying the transaction process.
The bridge connecting fiat currency and the crypto world: For new users, purchasing stablecoins through fiat currency is the most direct way to enter the crypto world. At the same time, it also provides a stable value scale for lending, financial management and other activities in the application of decentralized finance (DeFi).
The main types of stablecoins
According to the different value anchoring mechanisms, stablecoins are mainly divided into the following three categories, each with its representative projects and different risk characteristics.
1. Fiat-Collateralized
This is the most common and easy to understand stablecoin. It operates in that every time the issuer issues a stablecoin, it deposits fiat currencies of equivalent value (such as USD, Euro) in its bank reserves. Users can exchange stablecoins back to fiat currency at a ratio of 1:1 at any time.
Advantages: The mechanism is simple, the value is stable and reliable.
Disadvantages: Relying on a centralized issuing agency, you need to trust that the agency's reserves are real and sufficient. Therefore, transparency of reserves and audit reports are crucial.
Typical representatives: Tether (USDT), USD Coin (USDC).
2. Crypto-Collateralized
The value of such stablecoins is backed by other cryptocurrencies such as Ethereum as collateral. To cope with the price fluctuations of the collateral itself, it usually adopts the "over-collateralization" model. For example, users need to stake Ethereum worth $200 to mint a stablecoin worth $100 to buffer the risks brought by market declines.
Advantages: Decentralization, censorship resistance, all staking and clearing processes are automatically executed on the blockchain through smart contracts, with high transparency.
Disadvantages: The mechanism is relatively complex. In extreme market conditions, collateral may face the risk of liquidation.
Typical representative: DAI.
3. Algorithmic Stablecoin (Algorithmic)
Algorithmic stablecoins do not rely on any assets as collateral, but dynamically adjust their supply through a set of algorithms and smart contracts to maintain price stability. When its price is higher than the anchor value, the system will issue additional tokens to lower the price; when the price is lower than the anchor value, the system will repurchase or destroy the tokens to increase the price.
Advantages: Real decentralization is achieved without any collateral assets and high capital efficiency.
Disadvantages: The mechanism is the most complex and has a very high dependence on algorithms. There have been cases in history where prices dean anchor or even collapse due to design defects or market panic, and the risk is the highest.
Typical representative: This type of stablecoins is still in the exploration stage and has great risks.
How to get stablecoins
The most mainstream and convenient way to obtain stablecoins is through centralized cryptocurrency exchanges. These platforms provide services to purchase directly in fiat currency or exchange stablecoins with other cryptocurrencies.
You can easily obtain stablecoins on leading exchanges around the world, such as:
1. Binance
2. Ouyi (OKX)
3. Huobi
4. Gate.io
On these platforms, you can usually use your own fiat currency to purchase mainstream stablecoins such as USDT and USDC through bank transfers, credit cards or P2P transactions. Once you have a stablecoin, you can use it to trade thousands of other cryptocurrencies, or participate in various cryptocurrencies.
The above is the detailed content of What is a stablecoin? Understand stablecoins in one article!. For more information, please follow other related articles on the PHP Chinese website!

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