Stablecoins are tokens that are designed to keep their price parity with another asset. For example, a token pegged to the US Dollar at a 1:1 ratio should always be interchanged for the same amount in USD Dollars. 

In the crypto, the main advantage of stablecoins is the reduction of price volatility that is typical associated with crypto-currencies (e.g. Bitcoin, Ethereum, etc.). Keeping the price stable is especially important when establishing contracts that pay for services or/and goods at a future date. It is also important to be able to accurately perform accounting, budgeting, and paying taxes in a predictable manner.

Other advantages can include a combination of:

• censorship resistance;
• enabling truly decentralized financial applications;
• reduce corruption, issuance risks, fraud, etc.; 
• faster to transfers and/or settlements than other standard currencies;
• pseudo-anonymity could provide privacy that may be advantageous for certain legal activities.

There are also potential disadvantages or trade-offs, such as: 

• used to finance detrimental, or illegal, activities;
• not being officially recognized (e.g., unable to pay taxes, etc.); 
• technical and operational risks (e.g., losing private keys, hacks, contract bugs, etc.);
• pseudo-anonymity could be compromised and allow others to associate certain transactions with a user resulting breach of privacy.

Stablecoins can be classified into three different types:

1. Fiat-backed stablecoins involve an issuer (e.g., Circle Financial, Tether Inc., Paxos Trust) tokenizing an asset they have in custody. New tokens are issued/minted when this asset is deposited and destroyed/burned when these tokens are redeemed. They have the risk of centralization, as well as risks involved with banking rules and other regulations. Notable examples include USDT and USDC. 
2. Non-fiat collateralized stablecoins tend to be backed by over-collateralized crypto assets and are issued/burned when a user deposits/withdraws the asset backing it. There is the risk of the underlying asset losing enough value that the collateral is not enough to sustain the peg. A good example includes DAI from MakerDAO.
3. Algorithmic stablecoins use on-chain incentives to maintain a certain stable value. The risks of these types of tokens are associated with their mechanism design and incentives. These are also prone to attacks associated with being on-chain. Notable examples included USD Terra.

There are other types of stablecoin that combine a number of the features previously described. For example, FRAX uses a combination of 2 and 3 to create a stablecoin partially backed by collateral and stabilized algorithmically.