The price volatility of cryptocurrencies is a major barrier to mass adoption. Its rapid change in fiat-denominated value causes payment amounts to vary even during settlement times, making it highly inconvenient for merchants that handle them.

Stablecoins are cryptocurrencies with an exchange rate peg against existing fiat currencies (such as the US dollar) or a fiat-related index, thereby drastically increasing their usefulness as a payment medium.

Algorithmic Central Banks#

Although a wide variety of stablecoin mechanisms exist, Basis Dollar specifically uses an “algorithmic central bank” approach to manage the supply of tokens according to a predetermined logic. The algorithm is in charge of balancing stablecoin supply to fluctuating demand, ensuring that the token price remains relatively stable. Further details are available under the Mechanisms section.