Stablecoins are blockchain-based digital currencies collateralized to the value of an underlying asset (usually a claim on a reserve).
Owing to their peg, stablecoins are not subject to extreme price volatility, which has otherwise prevented mainstream adoption of applications built on top of cryptocurrency protocols.
There are broadly four approaches to stablecoins:
- Fiat collateralized
- Commodity collateralized;
- Crypto collateralized;
The most commonly collateralized stablecoins are linked to fiat currencies such as the U.S. dollar (USD), euro (EUR), or British pound (GBP). Prominent coins include Tether and USDC.
The biggest future stablecoin known today could be Diem (Libra).