How does a stablecoin work?
A stablecoin typically goes through a few stages before someone can use it.
Each stage may involve a different company.
First, a company issues a stablecoin. For every stablecoin it issues, the company also holds the same value in a country’s currency. This is how the company links the value of its stablecoin to the value of something else.
Then the stablecoin is issued to the broader public through another type of infrastructure known as a ledger. This records the transactions and who owns the stablecoin. It also transfers the value of stablecoins between individuals.
The value of the stablecoin issued onto the ledger is linked to the stable assets that the issuer holds. This means as soon as a coin-holder wants to exchange their stablecoins for, say, money in their existing bank account, they can do that easily and without loss.
Finally, another company provides a digital wallet which can be used on a smartphone or other pieces of hardware and software. The owner of the stablecoins can use this wallet to essentially store, send and receive their coins. It gives them a way to access their coins.
People can also decide to invest their stablecoins to make a return on them. They can go on platforms called ‘exchanges’ to do that.
