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Blockchain-based tokens that are designed to hold a stable value.
The purpose of stablecoins is to enable value to be transacted on Blockchains without the volatility of cryptocurrencies like Bitcoin and Ethereum.
Stablecoins can be backed 1:1 by fiat or similar assets. This usually happens through an entity that accepts fiat and deposits stablecoin into your on-chain wallet. This is a centralized process controlled by that entity, but it is a fairly proven mechanism. An example of this kind of stablecoin is USDC.
Stablecoins can also be algorithmic, which means they maintain their stability through a mechanism of burning and minting tokens. Arbitrage opportunities keep the token price stable rather than backing from assets. Algorithmic stablecoins have not achieved high adoption because of concerns about the maturity of their incentive mechanisms and high profile failures.