What Are Stablecoins and Why is PayPal Getting Involved?

If you put a dollar bill under your mattress, you know you’ll get a dollar bill back when you go looking for it, and that the paper currency will still be worth $1. A branch of cryptocurrencies called stablecoins has grown up based on the idea that such dependability can be replicated in new ways. Stablecoins have become crucial to the functioning of crypto markets, with about $125 billion in circulation in early August. They’ve also drawn increasing scrutiny from regulators: A high-profile attempt by Meta Platforms Inc. unraveled after an intense backlash. The rollout of a stablecoin from PayPal Holdings Inc. marked the first effort from a big financial company.

They are digital assets designed to hold a steady value, in contrast to the price volatility seen in Bitcoin and other so-called tokens. They’re usually pegged to another currency, most commonly the US dollar. That makes stablecoins useful for crypto investors who need to park their profits somewhere safe but don’t want to convert them back into real money, or want to move in and out of different digital assets or exchanges. The most widely used stablecoin, Tether, can be exchanged for thousands of other cryptocurrencies. There are dozens of stablecoins in use.