Stablecoins are cryptocurrencies that have a 1:1 exchange value (i.e. are “pegged”) to some other asset.
Stablecoins are understood to be pegged to a real-world currency’s value, such as one US dollar. They are helpful for securing a dollar amount in DeFi and can be traded on many exchanges without the price volatility found in other cryptos.
When stability in price is needed, stablecoins provide a predictable measure of value. They can be used to set sale prices and will maintain value through a complex chain of transactions if used in a complex trade or financial agreement. Programming a DeFi smart contract is facilitated by using these stables and referencing their dollar value.
Most networks have one or more stablecoins to represent one United States dollar. USDT, USDC, DAI, MIM, BUSD. Despite having different pegging mechanisms, they are all familiar stablecoins whose base unit is worth one (or very near to one) United States dollar. The methods they use to keep the $1 peg differ by protocol.
Some stablecoins are backed by pools of other stablecoins, in the case of USDC, MIM and DAI. USD Tether is a stablecoin that reports to have a variety of real-world assets and crypto backing its treasury.