Most cryptocurrencies are known for price swings, but an entire category exists specifically to avoid that: stablecoins, designed to hold a steady value, usually pegged 1:1 to a traditional currency like the US dollar.

How the peg is maintained

Different stablecoins maintain their peg differently:

• Fiat-collateralized stablecoins (like USDT or USDC) hold reserves of real-world assets — cash and cash equivalents — roughly equal to the number of coins in circulation, in principle allowing each coin to be redeemed for its underlying value.
• Crypto-collateralized stablecoins are backed by other cryptocurrencies, typically over-collateralized (holding more value in reserve than the stablecoins issued) to absorb the underlying assets' own volatility.
• Algorithmic stablecoins try to maintain their peg through automated supply adjustments rather than holding reserves directly — an approach that has proven considerably more fragile in practice.

Why people use them

Stablecoins are widely used as a way to move value between exchanges or hold funds "in crypto" without being exposed to the price swings of assets like Bitcoin or Ethereum — a practical middle ground between traditional currency and volatile crypto assets.

The peg isn't a guarantee

"Stable" describes the design intent, not a guarantee. A stablecoin can still "de-peg" — trade below its intended value — if confidence in its reserves or mechanism breaks down, something that has happened to several prominent stablecoins over the years, in some cases severely. Reserve composition and transparency vary significantly between issuers, and it's worth understanding what actually backs a stablecoin before treating it as equivalent to holding cash.