What is a stable coin?

As the name suggests, a stable coin refers to a cryptocurrency that was developed for the sole purpose of taming the runaway volatility that’s synonymous with most conventional digital currencies. Unlike most other coins that serve as independent native tokens for different blockchain networks, stable coins have their value pegged on that of the conventional fiat currency or an exchange-traded commodity like gold. Advancements in technology have also made it possible to have stable coins whose value is pegged on that of other cryptocurrencies.

The fact that the value of the underlying commodity influences the value of these coins, however, doesn’t mean that they are centralized. These are also referred to as redeemable stable coins as their holders have the option of converting them into real assets.