What Are Stablecoins?
Published in
1 min readNov 26, 2019
While conventional digital money like bitcoin is highly volatile, a stable coin is generally traded at a fixed price.
Key Features
- Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference.
- Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity’s price such as gold.
- Stablecoins achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.
Crypto-backed:
One of the most famous stablecoins — “dai” by MakerDAO which is an example of a crypto-backed stablecoin. Dai is pegged to the US Dollar — the assets backing the price are actually in Ethereum and other cryptos, not US dollars, and they are locked in the smart contract.
Fiat Backed:
The most common type of stablecoin is the “fiat backed” stablecoin. Tether (USDT), TrueUSD (TUSD),Paxos Standard (PAX), USD Coin (USDC) and the Gemini Dollar (GUSD) are all examples of cryptos pegged to the value of the US Dollar. Other stablecoins exist, pegging their value to other fiat currencies like GBP, AUD, NGN.
