A stablecoin is a token engineered to maintain a stable price, most commonly a one-to-one peg to a fiat currency. Different designs achieve this in different ways: some hold reserves of cash and equivalents, some are backed by other crypto collateral, and some use algorithmic mechanisms.
Stablecoins function as a unit of account and a medium of exchange within crypto markets, letting participants move value, settle trades, and hold funds without converting back to traditional banking rails each time.
Flows into and out of stablecoins, and the total supply outstanding, are tracked as indicators of capital movement in the ecosystem. Because peg stability depends on the soundness of the backing and the mechanism, the structure behind any given stablecoin is an important factor to understand.