The Rise of Stablecoins — What Are They, and How Do They Work?

GOBankingRates works with many financial advertisers to showcase their products and services to our audiences.

These brands compensate us to advertise their products in ads across our site.

This compensation may impact how and where products appear on this site.

Stablecoin written on paper.

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information.

it’s possible for you to read more about oureditorial guidelinesand our products and servicesreview methodology.

But not all coins are meant to appreciate.

Here are more details about what stablecoins are and how they work.

Also seethe six cryptocurrencies with the highest trading volume.

Stablecoins are pegged to a fiat (traditional) currency like the U.S. dollar.

That means the stablecoin maintains a 1-to-1 value with the pegged currency.

Take Tether (USDT), for example.

Its the largest stablecoin and the fourth-largest cryptocurrency overall by market cap.

As long as $1 is worth $1, one USDT is also worth $1.

But USDT is also a digital currency compatible with many different crypto networks.

email sharing button

you might use stablecoins in several different ways.

You use those dollars to purchase stock that trades on an exchange.

Although the stock price rises and falls, your dollar is always worth a dollar.

Cryptocurrency trades are different.

Aspurely digital transactions, they occur on blockchains that cant process transactions in dollars or other fiat currencies.

You then use that stored value to purchase the crypto you want to invest in.

Say you wanted to buy $100 worth of Bitcoin.

Heres how youd do it.

You dont have to use your stablecoins right away.

They can sit in your account until you need them.

Theyll be worth the same then as they were when you purchased them.

Blockchains work like ledgers to record transactions.

But transactions can be added to a blockchain only after theyve been verified and processed.

In return, you get a share of the rewards validators earn.

First, open and fund an account on your preferred exchange.

After confirming that the information is correct, submit your order.