Understanding the Types of Stablecoins

There different types of Stablecoins.

Fiat Collateralized:

These are backed by a fiat currency like USD, EUR, GBP, etc. For every single stable coin that is minted, it needs collateral of 1 underlying fiat currency in the bank account. So if you mint 100,000 Stablecoins pegged to the USD, you need 100,000 USD in the bank account.

Example:

Tether(USD)

TrueUSd

USDCoin

Commodity Collateralized:

These are backed by interchangeable assets. Common assets are metals like Gold and Silver, Oil, etc. Each coin is backed by an equivalent quantity of an asset.

Example:

Digix Gold

Crypto Collateralized:

These are backed by cryptocurrencies as having crypto as collateral for creating other cryptocurrencies makes them more decentralized and in order to create stability in the price of these coins, they are collateralized by more than their value. Example: $1 worth of Stablecoin is backed by $1.5 or $2 worth of Ether

Example:

Dai

Non-Collateralized:

The price of non-collateralized Stablecoins depends upon an underlying algorithm. They are truly decentralized coins as the price is independent of any other asset. The model uses an elastic approach. As the price goes up, the supply increases, thereby increasing sellers and reducing in price and as price goes down, supply reduces, thereby decreasing sellers and increase in price.

Example:

Ampleforth

Crypto Enthusiast and Investor. I give regular market updates, trends and news regarding cryptocurrency. I use a variety of sources for my content.