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FAQ 22 – What is a stablecoin?
What is a stablecoin?
Coinbase defines a stablecoin as a digital currency backed by safe currency. It is designed to reduce volatility compared to other crypto-currencies that are not backed by anything.
The asset chosen is a more stable value than other crypto-currencies.
A stablecoin can be indexed to FIAT currencies such as the dollar or euro, gold or silver. For example: 1 USD = 1$.
Stablecoin has contributed to the advent of DeFi.
Examples of stablecoin
– USDT (Tether),
– USDC (USDC Coin),
– Binance (USD – BUSD),
– TUSD (True USD – TrustToken),
– PAX (Paxos Standard),
– GUSD (Gemini Dollar),
– BUSD (Binance),
– DAI.
What is the purpose of a stablecoin?
– Exchange and record assets,
– Limit interest,
– Transfer money,
– Send money,
– Avoid volatility: protect against price movements by holding cryptocurrency,
– Access to foreign currencies: no limit on amount, low fees,
– No taxes.
There are 3 types of stablecoin
– Centralized stablecoins: a central organization manages and controls its issuance.
– Decentralised stablecoins: no central entity interacts in the process. This system operates in a decentralized manner like Bitcoin and Ethereum.
– Algorithmic stablecoins: a protocol acts as a central bank by increasing or decreasing the amount of tokens in circulation to maintain price stability.