What are Stablecoins?
Stablecoins are cryptocurrencies created to decrease the volatility of the coin’s price, relative to some “stable” asset or basket of assets. A stablecoin can be pegged to currency or exchange-traded commodities. Stablecoins are specifically designed to maintain a stable price so that users can avoid the volatility risks common in the crypto markets. Earlier, crypto investors and traders had no way to lock in a profit or avoid volatility without converting crypto back into fiat. The creation of stables provided a simple solution to these two issues. Today, you can easily get in and out of crypto volatility using stablecoins like USDC or DAI.
Types of Stablecoins
Fiat backed Stablecoins
Stablecoins can be backed by Fiat in the bank. USDC is an example of this where every USDC is backed by atleast 1 dollar in the bank. Users can deposit US dollars to mint USDC. In the same way USDC can be burned to withdraw USDC from the bank. If the price goes lower than $1 arbitragers can buy the stablecoin bringing it back to peg. They will be able to burn the coin for $1.
Crypto back Stablecoins
Stablecoin which use cryptocurrencies as collateral are know as Crypto-backed stablecoins. DAI is an example of this. Ether as well as other cryptocurrencies are used to back up DAI. Usually Crypto backed stable have a higher collateralization ratio as the underlying asset is volatile.
If the collateral goes below the stablecoins minted the user who has minted gets liquidated.
Commodity backed Stablecoins
Not all crypto currencies are pegged to some fiat currency. There are stablecoins which follow the price of gold, oil silver etc. The amount minted is backed by the physical commodity. Gold backed stable coins own gold generally in a where house where it can be redeemed if required. USDT is backed by multiple things such as Gold, BTC and cash.
Algorithmic stablecoins are the riskiest type of stablecoins. They need not be backed or maybe partially back by crypto. Algorithmic stablecoins use multiple technics to keep them peg. Some involve increase interest rates to reduce supply, buyback, arbitrage, minting if the stablecoin is overpeg.
Stablecoin Development Service
We have quite a bit of experience in creating secure stablecoins with many features ensuring your stablecoin stays on peg with customizable features such as optimal collateralization slopes, integration of ve(3,3) tokenomics, yield farming ,staking and much more.
You can send us a email to inquire more about what we can do for you.