A stablecoin is a cryptoasset that is linked to a stable asset, such as a fiat money or precious metal. Stablecoins were created in order to prevent the high levels of volatility that characterise the cryptocurrency market.

Stablecoins are classified into three types: fiat-backed, crypto-backed, and algorithmic. Stablecoins backed by fiat currency, such as BUSD, are linked to regular fiat currencies. They keep the stablecoin pegged by retaining fiat reserves that may be swapped for it. To account for crypto price volatility, crypto-backed stablecoins (such as DAI) over-collateralize their