A stablecoin is a crypto token pegged to a fiat currency. The oldest one is Tether. But there are others too, like TUSD (True USD), USDC (USD Coind), etc. The idea is that these tokens are backed 1:1 with real fiat. So, if the circulating supply of such a token is 1 million, the issuer must have somewhere in cold storage (or accessible) 1 million USD. If the supply decreases to 700k, the backing amount will also be $700k.

The roles of these stablecoins is to act like "mirrors" of the fiat currencies. Instead of buying, let's say, Bitcoin with your USD, you buy instead Tether, and then exchange the Tether to Bitcoin. If you sell your Bitcoin, you may choose to sell it for Tether too, and once you want to actually use the USD value stored in that amount of Tether, you sell it for actual USD.

These stablecoins are issued on their own blockchain, just like Bitcoin, and that makes them very liquid, ready to use, without the friction of fiat currencies. That's why they are use instead of fiat, because you can move them faster.

My hunch is that banks want to use them for the same reason, because they are fast and the infrastructure behind them is basically free for them.

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