These are cryptocurrencies with their values tied to a conventional currency or to a commodity like the U.S. dollar.
The Long Explanation
These are a kind of cryptocurrencies that are backed by a traditional currency, like the U.S. dollar, or by a commodity, like gold. This backing helps eliminate the unpredictability associated with most other cryptocurrencies, like bitcoin, which makes them unfeasible for most commerce.
It is by tying the value of cryptocurrencies to other stable assets, like traditional currencies and commodities, do stablecoins manage price fluctuations.
How are digital stablecoins pegged to actual physical assets?
The asset backing the stablecoin will be stored in a “reserve”. For instance, if U.S. dollars is the backing asset for the stablecoin, an amount equivalent to the number of units of the stablecoin ($1 million for 1 million stablecoin units) will be reserved in a traditional bank. When a stablecoin holder wants to cash out their tokens, an equivalent amount of the backing asset will be taken from the reserve.
