ELI5 Stablecoins - how do they stay stable?

What are stable coins and why do we even need them? What’s the mechanism that makes them stable? What are the different types of stable coin? How did the algorithmic stable coin Terra work, and why did it unravel?   ... we explain like I'm five Thank you to the r/explainlikeimfive community and in particular the following users whose questions and comments formed the basis of this discussion: fihaal42, tehwildman_, enough_blueberry_549, sleep_naked, red_atnight and lawproud492. Some extra resources: https://medium.com/@lawrenceg/what-are-stablecoins-and-why-do-we-need-them-db83c85b86b https://multicoin.capital/2018/01/17/an-overview-of-stablecoins/ https://en.wikipedia.org/wiki/Stablecoin To the ELI5 community that has supported us so far, thanks for all your feedback and comments. Send us an e-mail: [email protected]