#StablecoinRatings Las stablecoins (stablecoins) are a type of cryptocurrency designed to maintain a stable value, unlike volatile cryptoassets like Bitcoin or Ethereum. They achieve this stability by linking their value to an underlying asset, such as a fiat currency (e.g., the US dollar) or commodities (e.g., gold).
Types of Stablecoins
There are mainly four types, differentiated by the mechanism they use to maintain their price parity:
Fiat-backed: This is the most common type. Each stablecoin in circulation is backed by an equivalent amount of fiat currency (usually dollars) held in reserve accounts by the issuer. Key examples include USD Coin (USDC) and Tether (USDT), which are the most widely used by market capitalization.
Commodity-backed: Their value is linked to physical assets like gold, silver, or oil. An example is Pax Gold (PAXG), where each token represents a troy ounce of physical gold.
Crypto-backed: These are backed by other cryptocurrencies as collateral. To mitigate the volatility of the backing cryptocurrencies, they are usually over-collateralized. Dai (DAI) is a well-known example that primarily uses Ethereum as collateral.
Algorithmic: They use algorithms and smart contracts to automatically adjust the supply of tokens and maintain a stable price, without direct backing from external assets. They have proven to be riskier, as some have lost their parity in the past.
Uses and Benefits
Stablecoins serve as a "bridge" between traditional finance and the crypto world, offering the efficiency of blockchain technology with the stability of fiat currencies.
Facilitating cross-border payments and remittances more quickly and economically than traditional banking systems.
