Stablecoins are a unique type of cryptocurrency that aim to offer price stability, typically by being pegged to a more stable asset like a fiat currency (e.g., the US dollar) or commodities like gold. This pegging is achieved through various mechanisms, such as holding reserves of the stable asset, using algorithms to control supply, or through a combination of both.
Stablecoins combine the instant processing and security of cryptocurrency transactions with the stable value of traditional currencies. They are particularly useful for reducing volatility in trading, making cross-border transactions, and providing a stable store of value in economies with unstable currencies. However, the stability and reliability of a stablecoin depend heavily on the credibility of its backing and the governance model of its issuing entity.