Is a stablecoin an altcoin?

Pegging one asset to another ensures a consistent relationship between the two values. This "fixing" mechanism guarantees stability and reduces volatility, which is a significant concern for many cryptocurrency investors.

As an example, let's consider the hypothetical XYZ Coin. If XYZ Coin is designed as a stablecoin, its value will be pegged to a specific asset, such as the U.S. dollar.

Stablecoins, by their fundamental nature, are classified as altcoins. This distinction arises from the alternative nature of their value proposition compared to traditional cryptocurrencies.

In practice, this pegging is achieved through various mechanisms, including the use of collateral, algorithmic adjustments, or a combination of both. The objective is to maintain the stability of the stablecoin's value relative to its underlying asset.

The value of a stablecoin is tethered, or pegged, to an underlying asset. While the choice of asset is variable, the majority of stablecoins are defined against the U.S. dollar or the euro.