what is a 'stablecoin'

A stablecoin is cryptocurrency with an extremely low volatility. Stablecoins are often asset-backed ensuring a stable price. They are helpful during bear markets because they provide investors and traders a way to exchange falling assets into stable assets. 

the 4 types of 'stablecoins'

  • Fiat-backed stablecoins – Those are usually the older type of currencies. They are characterized by the connection to fiat money. A bank or creditor holds the amount of fiat money necessary to back the circulating supply of the cryptocurrency in a certain ratio.
  • Commodity-backed stablecoins – Tokens are not backed by fiat currencies bur rather another commodity like e.g. gold. A third party is centrally holding a fixed ratio of commodities to back up the value of the cryptocurrency
  • Cryptocurrency-backed stablecoins – This design differs very much from the previous two. Cryptocurrencies are in this case the collateral holding their value. People can e.g. take on a loan but have to provide a certain amount of securities (cryptocurrencies) in exchange. The exchange happens on-chain through the execution of smart contracts. 
  • Algorithmic  stablecoins – These type of stablecoins are linked to a DAO which exactly monitors and controls supply and therefore its price. These kind of stablecoins are completely decentralized and not dependent on any form of collateral. 

The most popular 'stablecoins'

  • Tether (USDT) – Tether is the most prominent of all cryptocurrencies. It was invented by the exchange Bitfinex and is currently available on pretty much all major exchanges.
  •  TrustToken (TruesUSD) – ERC20 tokens that are fully collateralized. TrueUSD is in comparison to USDT legally protected, and transparently audited by reputable accounting companies.
  • Paxos Standard Token (PAX) – Stable and fully digitalized coins back by US dollars. PAX was authorized by the New York Department of Financial Services.
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