Stablecoins are a class of cryptocurrencies designed for low price volatility.
Stablecoins are typically pegged 1:1 to the USD and utilize a variety of mechanisms to keep this peg at 1:1. These mechanisms may range from simply backing each token 1:1 with the same amount of fiat currency or collateral held in a bank or escrow to a smart contract based system that automatically manages reserve cryptocurrency to guarantee per coin parity with a currency.
Examples of stablecoins and their mechanisms are:
USDT Tether – a cryptocurrency on the OMNI blockchain where each USDT coin or token is backed by 1 USD in the bank.
DAI Stablecoin – An Ethereum based digital currency pegged 1:1 to USD by the amount of ETH held in escrow backing each token. A smart contract constantly changes the number of ETH held to ensure parity of each token with the USD.
GUSD – Another Ethereum based digital currency pegged 1:1 to the USD where each token is backed by an equal Dollar held in reserve in a bank.