What is Stablecoin

A stablecoin is a cryptocurrency designed to maintain a stable value, typically pegged to a fiat currency (most commonly the US dollar) at a 1:1 ratio. Stablecoins combine the programmability and borderless nature of cryptocurrency with the price stability needed for everyday transactions, DeFi participation, and value preservation without converting back to fiat.

WHY STABLECOINS ARE ESSENTIAL TO CRYPTO

Bitcoin and Ether's price volatility makes them impractical for regular payments and lending. A ₹1,000 debt denominated in ETH might require ₹1,500 to repay a week later. Stablecoins solve this: $1 USDC is always worth approximately $1, enabling reliable DeFi lending, cross-border remittances, payroll, and a safe haven during downturns without exiting crypto entirely.

THREE TYPES OF STABLECOINS

Fiat-Backed (Centralised): USDT (Tether), USDC (Circle), FDUSD. Each token is backed 1:1 by USD held in bank accounts or US Treasury bills by the issuing company. Most trusted for stability but introduce counterparty risk. Circle's USDC briefly de-pegged in March 2023 when $3.3B was held at the failed Silicon Valley Bank.
Crypto-Backed (Decentralised): DAI (MakerDAO). Backed by overcollateralised crypto deposits (ETH, WBTC, USDC) locked in smart contracts. No single company controls it more decentralised but more complex.
Algorithmic (Unbacked): Maintain peg through algorithmic supply adjustments.
LUNA/UST: The most infamous failure of Terra's UST was algorithmically backed by LUNA. In May 2022, a large UST sell triggered a death spiral. UST lost its peg, causing unlimited LUNA minting to restore it, hyperinflating LUNA to near-zero. $40+ billion destroyed in days.

STABLECOINS IN INDIA

Stablecoins face regulatory uncertainty in India. RBI's Digital Rupee (CBDC) is the government-backed alternative. International stablecoin transfers still fall under FEMA, and stablecoin holdings are taxable as VDAs under the 30% rate.

Terms in addition to the Stablecoin

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.