Tokenized fiat money. Investors who don't want to worry about crypto volatility tend to buy tokens that are pegged to fiat currency in a 1:1 value ratio, enabling them to quickly enter or exit the market.
Although stablecoins are technically cryptocurrencies, they are viewed as gateway tokens. As their name indicates, they ensure stability in your crypto wallet. When investors wait for an opportune moment to buy a certain cryptocurrency, it would be easiest to have a large number of stablecoins ready. For example, the most popular stablecoin run by Bitfinex exchange, Tether (USDT), is equal to USD in a 1:1 ratio.
Meaning, US$1 is 1 USDT, and it remains so. By being so tethered, you would be able to quickly buy any crypto on the exchange. USD Coin (USDC) and Dai (DAI) are the two other most popular stablecoins serving the same purpose. However, not all stablecoins are created equal. Some are collateralized differently.
Cash is the main backing for both USDT and USDC, in addition to other assets equivalent in value. These could be fiduciary deposits, treasury bills, corporate bonds, secured loans, or reverse repo notes. Whatever the collateral is, it is important that organizations running stablecoins are regularly audited.
So far, USDC, founded by Circle, Coinbase, and Bitman mining firm, seems to be the most regulated stablecoin. DAI stablecoin handles collateralization in a novel way by using crypto assets. To make it stable, it is then over-collateralized. Because of the economic law of supply and demand, whenever DAI's price goes under the 1:1 ratio to USD, its supply is decreased. In turn, this pushes DAI price up again.
In the same fashion, if the DAI price goes above US$1, new DAI tokens are minted to increase the supply and lower the demand. Recently, the next generation of stablecoins emerged, called algorithmic stablecoins. They stabilize their peg to USD just like DAI does, but automatically and in a decentralized manner using the rebase system. Meaning, they periodically contract and expand supply through algorithms.
Unfortunately, algorithmic stablecoins such as Ampleforth (AMPL) have not yet demonstrated they can remain the 1:1 peg. In contrast, TerraUSD (UST) seems to be a far more successful algorithmic stablecoin project.