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In days of high volatility, stablecoins seem like saviors from heaven
But with the variety of different ones available, even experienced traders often don’t know the differences and how they work.
Here’s a threat about the STABLECOINS.
But with the variety of different ones available, even experienced traders often don’t know the differences and how they work.
Here’s a threat about the STABLECOINS.
1)Stablecoins are blockchain-based tokens that are pegged to a fiat currency.
$USD stablecoins are by far the most popular.
Let's go through fiat-collateralized coins first, and then the most popular crypto-collateralized ones.
$USD stablecoins are by far the most popular.
Let's go through fiat-collateralized coins first, and then the most popular crypto-collateralized ones.
2)Fiat-collateralized stablecoins work like this:
The issuer receives a certain amount of USD and then issues the corresponding number of stablecoin tokens.
The USD must be held in reserve by the issuer as long as the stablecoin tokens are in circulation.
The issuer receives a certain amount of USD and then issues the corresponding number of stablecoin tokens.
The USD must be held in reserve by the issuer as long as the stablecoin tokens are in circulation.
3)This is necessary because the issuer has to prove that, at any point, you can exchange your stablecoins for USD.
That redeemability is what keeps the value of a stablecoin equal to 1 USD.
That redeemability is what keeps the value of a stablecoin equal to 1 USD.
4)To start with, Tether( $USDT ) is by far the most popular stablecoin, with a market cap of $20 billion.
It is also somewhat controversial, since the issuer admitted that USDT is partly backed by their loans to third parties and not only by reserves.
It is also somewhat controversial, since the issuer admitted that USDT is partly backed by their loans to third parties and not only by reserves.
5)There was also some controversy with Tether refusing third-party audits.
However, it remains the most popular option due to its widespread use.
However, it remains the most popular option due to its widespread use.
6)Next up, there are a few tokens that are very similar and we’ll cover them as a group.
These are $USDC, $TUSD, $GUSD, $PAX and $BUSD.
These are $USDC, $TUSD, $GUSD, $PAX and $BUSD.
7)All of them have gone through extensive audits and are backed 1:1 by reserves.
They’re generally regarded as very safe and differ only in the institutions that issue them (except for BUSD, which, like PAX, is issued by Paxos).
They’re generally regarded as very safe and differ only in the institutions that issue them (except for BUSD, which, like PAX, is issued by Paxos).
8)Finally, there are also crypto-collateralized stablecoins.
These coins get around the issue of trusting a single institution by collateralizing with crypto (including other stablecoins).
They can be backed by multiple types of collateral, further increasing security.
These coins get around the issue of trusting a single institution by collateralizing with crypto (including other stablecoins).
They can be backed by multiple types of collateral, further increasing security.
9)They are typically issued by a smart contract: you lock collateral in the contract and get the stablecoins.
Because the collateral can change in value, they are over-collateralized, normally at 150%.
Because the collateral can change in value, they are over-collateralized, normally at 150%.
10)That means that, to mint $100 worth of stablecoins, you need to lock $150 worth of collateral.
The most popular crypto-collateralized stablecoin is DAI, created by Maker.
The most popular crypto-collateralized stablecoin is DAI, created by Maker.
11)DAI is backed by different cryptocurrencies, including BTC, ETH and USDC.
That gives it added security in case one of the collateral assets drops in value.
That gives it added security in case one of the collateral assets drops in value.
12)There are other crypto-collateralized stablecoins in various phases of development or adoption, like sUSD and RSV, but DAI is by far the most popular.
In any case, we can expect there to be many more decentralized stablecoins backed by different kinds of assets in the future.
In any case, we can expect there to be many more decentralized stablecoins backed by different kinds of assets in the future.
13)That’s all you need to know about how different stablecoins work and more importantly why they differ.
Use them accordingly.
Use them accordingly.
