What is Stablecoin?
A cryptocurrency designed to maintain a stable value by being pegged to a fiat currency like the US dollar.
What is a Stablecoin?
A stablecoin is a type of cryptocurrency that is designed to keep a stable price, usually by being pegged 1:1 to a fiat currency like the US Dollar. While Bitcoin can gain or lose 10% in a single day, stablecoins like USDT (Tether) or USDC (USD Coin) aim to always be worth exactly 1 US Dollar (approximately Rs 83-84).
Why Do Stablecoins Exist?
Stablecoins solve the biggest problem with crypto for everyday use - price volatility. You would not want to buy chai with Bitcoin if the price of Bitcoin could change 5% by the time the transaction is confirmed. Stablecoins let you transact, save, and use DeFi without exposure to crypto price swings.
Types of Stablecoins
- Fiat-backed (USDT, USDC): Each token is backed 1:1 by real US dollars held in bank accounts or short-term bonds. Most common type. Risk: you must trust the issuer (Tether Ltd, Circle).
- Crypto-backed (DAI): Backed by other cryptocurrencies, but over-collateralized to absorb price drops. For example, Rs 1.5 lakh of ETH is used to mint Rs 1 lakh of DAI.
- Algorithmic (UST): Maintained by supply-and-demand algorithms instead of collateral. Highest risk - the UST collapse in 2022 wiped out tens of billions of dollars and affected many Indian investors.
How Indian Investors Use Stablecoins
- Parking profits during a bear market without converting back to INR (which would trigger tax events).
- Earning 5-12% APY on stablecoin deposits in DeFi or CeFi platforms.
- Sending money internationally - a USDT transfer is faster and cheaper than a wire transfer or hawala.
- Trading pairs: most crypto trading pairs on exchanges use USDT as the quote currency.
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