What are Stablecoins?

Ever heard of Stablecoins before? What are they, how do they work, and who can apply? We also explain how they maintain a constant price.

What is a stablecoin?

The cryptocurrency market is one of the most volatile markets, with price fluctuations between sessions that can create huge gaps in a blink of an eye.

Stablecoins try to counter this volatility. How? Each stablecoin, without losing its characteristics as a digital currency, is backed by collateral values that, in principle, keep the price stable.

For example, USDT is backed up by USD at 1:1 parity. It means that, for every USDT, there is a real USD (held in an escrow account pool) that acts as a guarantee. The price of USDT is based on the USD price and not the volatile cryptocurrency market.

What assets are used as collateral for stablecoins?

Fiduciary Money

Tether is not the only platform that uses USD as collateral. You will also see Truecoin and USDC in this line, as well as BUSD, EURT, and other currencies like EURT.

Other Cryptocurrencies

The process of using another cryptocurrency as collateral is more complicated because, as you might imagine, it’s still subject to the volatility of the market.

Platforms develop systems to protect assets in order to combat price fluctuations. Maker DAO, for example, uses tokens as backing (in this case Ethers) and combats volatility at the same time through a mechanism called “Overcollateralisation”.

Commodities and other securities

This collateral model relies on tangible assets, such as gold.
Some stablecoins such as Digix and G-Coin hold (accordingly) a stock or gold bullion so that each token represents 1 gram physical gold.
Non-collateralised Stablecoins

There are uncollateralised and collateralised stablecoins.

How do they keep their prices stable? Their blockchains are built on algorithms and smart contracts to control volatility.

They are criticised because they do not act decentralised enough, as they behave in part like a traditional bank (controlling and adapting cash flows within the network in accordance with market fluctuations). USDX and NUBITS are good examples.

Stablecoins – Pros and cons


  • You can see if you compare the price of Tether with that of other tokens on the market, stablecoins are indeed more stable.
  • They are also highly liquid, just like other tokens.
  • They are accepted more readily by online retailers and other platforms, thanks to their backing (unlike most coins).
  • These are digital payments, but they have a connection to the real-world.


  • Their ecosystem is more centralised than other tokens.
  • Third parties certify and authorise most platforms. The cryptocurrency world is still working outside of regulators, and many are unsure that the collateral stored in the system is really there.