# Usdfi: What is a Stablecoin?

A **stablecoin** is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, typically a fiat currency like the US Dollar (USD), Euro (EUR), or a basket of assets. Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, which can experience high levels of volatility, stablecoins aim to provide price stability and are often used as a medium of exchange, a store of value, or a unit of account within blockchain-based ecosystems.

Stablecoins can be categorized into three main types:

1. **Fiat-collateralized stablecoins** – backed 1:1 by fiat reserves held in custody (e.g., USDT, USDC).
2. **Crypto-collateralized stablecoins** – backed by other cryptocurrencies and often over-collateralized to account for market volatility (e.g., DAI).
3. **Algorithmic stablecoins** – rely on algorithms and smart contracts to regulate supply and demand and maintain the peg without physical collateral.

In the case of USDfi, the stability of the asset is ensured through a transparent and verifiable mechanism, combining the reliability of reserve-backed models with the efficiency and scalability of decentralized finance (DeFi) protocols.

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