What is a stablecoin?

A stablecoin is a type of cryptocurrency designed to keep its price close to a reference asset, such as the US dollar or euro. The target value and the price at which it actually trades need not be identical.

How does a stablecoin aim to hold its value?

Depending on the model, it may use cash and similar reserves, crypto collateral or mechanisms that manage supply. Some designs combine these approaches. The distinction helps explain what assets and counterparties a token depends on; it is not a safety ranking on its own.

The link to a target is called a peg. Moving away from that target is known as a depeg. Having reserves does not establish that every holder can cash out whenever they want on identical terms; redemption conditions matter too.

A simple example

For a token targeting one US dollar, 100 tokens represent $100 at the target value. If they can be sold for $0.99 each, gross proceeds are $99 before fees. This hypothetical example separates the intended value from the amount a sale can deliver.

Even when the quoted price stays at $1, fees and the terms of your sale or withdrawal can reduce the dollars you receive. The peg is a price target, not a guarantee of net proceeds or protection of principal.

The stablecoin usage checks explain how reserves, redemption rights and network selection affect the practical limits of the definition.