![]() ![]() The issuer holds an equivalent amount of the underlying fiat currency in reserve to back the stablecoin.Ĭommodity-backed stablecoins: These are pegged to a commodity such as gold, silver, or oil. Let's take a closer look at each type:įiat-backed stablecoins: These are the most common type of stablecoins, and they are pegged to a fiat currency such as the US dollar or euro. The most popular algorithmic stablecoin is DAI, which is pegged to the US dollar.ĭifferent Types of Stablecoins and Their CharacteristicsĪs discussed above, there are different types of stablecoins, each with its unique characteristics. Instead, they use algorithms to control the supply of stablecoins in circulation, and in turn, maintain a stable value. These types of stablecoins are less common than fiat-backed stablecoins.Īlgorithmic stablecoins, also known as decentralized stablecoins, are a type of stablecoin that does not rely on any underlying asset to maintain its peg. The issuer of the stablecoin holds an equivalent amount of the underlying commodity in reserve to back the stablecoin. For example, if an issuer wants to create 1 million stablecoins pegged to the US dollar, they would need to hold 1 million US dollars in reserve.Ĭommodity-backed stablecoins are pegged to a commodity such as gold, silver, or oil. ![]() The issuer of the stablecoin holds an equivalent amount of the underlying fiat currency in reserve to back the stablecoin. The most common types of stablecoins include fiat-backed stablecoins, commodity-backed stablecoins, and algorithmic stablecoins.įiat-backed stablecoins are the most common type of stablecoins, and they are pegged to a fiat currency such as the US dollar or euro. There are different types of stablecoins, each with its unique characteristics. Stablecoins are digital tokens that are pegged to a real-world asset such as fiat currency, gold, or other cryptocurrencies. What Are Stablecoins and How Do They Work? In this article, we will discuss stablecoins, their different types, how they work, their role in decentralized finance (DeFi), and their benefits and risks. ![]() Stablecoins are designed to offer the advantages of cryptocurrencies such as decentralized transactions, without the volatility that is characteristic of many cryptocurrencies. The world of cryptocurrency has seen the emergence of stablecoins, which are digital tokens that are pegged to a real-world asset such as the US dollar or gold. ![]()
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