How stablecoins work?

Here are some things to know about how stablecoins work. Definition: What are stablecoins? Stablecoins are a type of Bitcoin alternative (altcoin) that is built to offer more stability than other cryptos.

How many types of stablecoins are there?

There are three types of stablecoins, based on the mechanism used to stabilize their value. Fiat-collateralized stablecoins maintain a reserve of a fiat currency (or currencies) such as the U.S. dollar, as collateral assuring the stablecoin's value.

What are crypto-backed stablecoins?

The cryptocurrency exchange Coinbase offers a fiat-backed stablecoin called USD coin, which can be exchanged on a 1-to-1 ratio for one U.S. dollar. Crypto-backed stablecoins are backed by other crypto assets. Because the backing asset can be volatile, crypto-backed stablecoins are overcollateralized to ensure the stablecoin’s value.

Do you need a bank account to hold stablecoins?

Trade or save assets. You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.