A stablecoin is a particular kind of cryptocurrency which is programmed to have it’s value follow and be tied to a particular fiat currency (such as the dollar).

By having the value linked to a fiat currency, it gives traders a way to hold funds in a stable, government currency while still having the benefits of a cryptocurrency.

The most common use of a stablecoin is to hold funds on an exchange, but without being in a non-fiat cryptocurrency which might experience a lot of volatility. For instance, Bitcoin typically sees big swings up and down. Some people want to hold funds on an exchange, but in a stable form that doesn’t swing in value. That’s what a stablecoin is for.

While stablecoins give one the apparent stability of their home currency (like the dollar), one also has to keep in mind that stablecoins are also subject to the same inflation as the fiat currency. As the value of the dollar drops, so does the value of the stablecoin.

The value of a stablecoin is pretty much always 1. One coin per one dollar. In some cases, you may see tiny valuation swings of a penny or two up and down from one dollar, but it will self-correct. The code which powers the stablecoin is designed to always follow the value of the currency to which it is tied.