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Stablecoins are a convenient way for crypto investors to hold “cash” in their crypto portfolios. Find out why Canadians with more conservative investing strategies consider stablecoins.
Technically, a stablecoin is a cryptocurrency whose value is pegged to another currency or asset, such as the U.S. dollar, euro or gold. However, typically, the term “stablecoin” refers to dollar-pegged cryptocurrencies, since their value merely mirrors the market price of the dollar. One unit of a U.S.-dollar stablecoin (such as USDT, USDC or the newer PayPal USD) is more or less equal to one U.S. dollar.
U.S.-dollar stablecoins help make crypto viable as a medium of exchange because their value doesn’t fluctuate in dollar terms. Relative stability fosters the use and acceptance of cryptocurrencies as payment. There are various types of stablecoins, including fiat-collateralized stablecoins (like USDC), crypto-collateralized stablecoins (like MakerDAO’s DAI) and algorithmic stablecoins (like the now-defunct Terra UST).
In August 2023, PayPal launched PayPal USD (PYUSD) on the Ethereum blockchain. PYUSD is a stablecoin that can be redeemed 1:1 for U.S. dollars. It is fully backed by U.S. dollar deposits, short-term U.S. treasuries and similar cash equivalents.
There is one stablecoin pegged to the Canadian dollar: QCAD, relaunched by fintech firm Stablecorp in 2023.
Example: “I recently bought bitcoin-mining hardware online and the seller insisted I pay for it using a U.S.-dollar stablecoin so that they don’t lose money in case the crypto market crashes.”
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