> For the complete documentation index, see [llms.txt](https://wp.isc.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://wp.isc.money/introduction/why-isc-matters/state-of-stablecoins/what-is-a-stablecoin.md).

# What is a Stablecoin?

Stablecoins are a type of cryptocurrency that pegs its value to another currency, commodity, or financial instrument. This makes them preferable as a medium of exchange compared to other cryptocurrencies, such as Bitcoin and Ethereum, whose value can be highly volatile and are therefore impractical to use as a currency. The most popular stablecoins are pegged to the US Dollar.

**How are USD-Pegs Maintained?** 

All stablecoins that are pegged to the value of the US Dollar are set at a value of one US Dollar ($1.00). Despite this point of commonality, various methods are used to maintain this peg. The three most common methods are: **fiat-collateralization**, where the stablecoin is backed by a reserve of fiat currency and/or cash equivalents; **crypto-collateralization**, where the stablecoin is backed by a reserve of cryptocurrencies; and **algorithmic**, where a combination of dynamic collateralization, dynamic minting and burning, and overcollateralization are employed to maintain the peg.