Redirected from: asset-backed stablecoin

Definition: stablecoin

A cryptocurrency whereby each coin is backed by something else. For example, one token of an asset-backed stablecoin such as Digix (DGX) or OneGram (OGC) equals one gram of gold. Fiat-backed stablecoins such as Tether (USDT) and Binance USD (BUSD) are pegged to one U.S. dollar. As of March 2023, the three top stablecoins by market cap are approximately USDT ($70B), USDC ($41B) and BUSD ($15B). See Tether, USDC and Binance.

Stablecoins Are "Theoretically" Stable
Stablecoins are a digital currency that have the attributes of Bitcoin without the price fluctuation.

Tied to the Dollar

While thousands of cryptos fluctuate wildly, dollar-pegged stablecoins such as Tether remain steady (see crypto stats). Crypto transactions are generally faster and have smaller fees than bank transactions. Like any crypto, stablecoins can be used to quickly transfer money from country to country. Because stablecoins are crypto, they can be transferred to any crypto wallet or exchange, and popular stablecoins are widely supported. Crypto investors, traders and arbitrageurs use stablecoins for temporary cash (see crypto trading pair).

Another Reason
Although stablecoin regulation may be inevitable, in the meantime, keeping financial transactions private is an advantage. Stablecoins offer a private banking alternative, and naturally, crooks welcome this option.

Two Ways to Maintain Stability
The first is a "reserved" or "regular" stablecoin, which is backed by dollars, Euros or precious metals. For example, one dollar in collateral is maintained for each stablecoin.

The second is an "algorithmic" stablecoin, which is paired with some crypto token in a predefined ratio. If the stablecoin/token ratio goes out of balance, either stablecoins or tokens are created or destroyed ("burned") to maintain equilibrium. If the algorithm is not well designed, things can fall apart. For example, a lot of buzz surrounded the algorithmic TerraUSD stablecoin, which was paired with the LUNA token, when LUNA dropped from $1 to near zero (see TerraUSD). See DAI, Tether, Gemini Trust, USDC, Diem and crypto burning.


 (From CoinMarketCap.com)

                Billions/Market Cap in 2022
 Dollar-Pegged           (rounded)
  STABLECOINS        4/1   7/1   12/22

 Tether (USDT)       $81   $66    $66

 USD Coin (USDC)     $52   $56    $44

 Binance USD (BUSD)  $18   $18    $18

 DAI                 $10   $7     $6

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Redirected from: asset-backed stablecoin

Definition: stablecoin