A stablecoin is a digital currency that is linked to an underlying asset such as a national currency or a precious metal such as gold.
For investors interested in gaining exposure to cryptocurrency but worried about rampant volatility, stablecoins may be worth a look.
Cryptocurrencies such as Bitcoin and Ethereum have disrupted the way many investors interact and there prices can change drastically.
Stablecoins, on the other hand, are less subject to volatility. Stablecoins are cryptocurrencies that are backed by an asset, most often a fiat currency.
The main types of stablecoins include fiat-backed, cryptocurrency-backed and commodity-backed stablecoins.
"Stablecoins are a type of cryptocurrency that are designed to maintain a fixed value, often pegged to a fiat (government-backed) security," says Adam Lowe.
One of the chief ways to use stablecoins is for quick and cheap payments or money transfers on a global scale. Stablecoins provide a fast way to transfer deposits or withdrawals.
When crypto users observe major price movements, they could move their money to stablecoins and wait for the market to stabilize.
Another advantage of stablecoins is the ease of use across cryptocurrency exchanges. They are highly liquid and tradable, making them easy to exchange into other cryptocurrencies.
It's not easy to transfer cash in and out of cryptocurrencies. it can take days for the withdrawal to finalize. But if you convert your money to stablecoin, you maintain its value.