¿What is a stablecoin?

9/17/2023

We can define stablecoin or stablecoin as a cryptocurrency designed to maintain its value relatively constant compared to a fiat currency, such as the US dollar or the euro. Unlike other volatile cryptocurrencies like Bitcoin, whose value can fluctuate significantly in a short period of time, stablecoins are backed by assets like cash, bonds, or even other cryptocurrencies.

A stablecoin is any crypto asset backed or collateralized in a fiduciary asset.

Use cases:

The use cases for stablecoins are varied and go beyond simply being a store of value. One of the most common applications is to facilitate transactions within the world of cryptocurrencies, since their stability makes them ideal for buying and selling digital assets without worrying about price fluctuations. Stablecoins are used for faster and cheaper international transfers than those offered by traditional financial systems.

Another important use case is financial inclusion, as stablecoins can provide access to financial services to people in underserved or unbanked regions. They are also a valuable tool for protecting against cryptocurrency market volatility, as they allow investors to hold their assets in a more stable form while searching for investment opportunities.

Types of stablecoins

Fiat-backed stablecoins:

USDC (USD Coin): Backed 1:1 by US dollars in bank accounts.
USDT (Tether): Supposedly backed by US dollars, although there has been controversy over its full backing.
EURS (STASIS Euro): Backed by euros in bank accounts.

Stablecoins backed by digital assets:

DAI: Uses collateral in the form of cryptocurrencies, such as Ether (ETH), to maintain its stability.
sUSD (Synthetix USD): Uses collateral in the form of synthetic tokens backed by cryptocurrencies.

Commodity-backed stablecoins:

DGX (Digix Gold Token): Backed by physical gold stored in vaults.

Algorithmic stablecoins or seigniorage:

Ampleforth (AMPL): Your bid is automatically adjusted to keep your dollar value constant.

Hybrid stablecoins:

Terra (LUNA): Uses a hybrid model that combines algorithms and collateral to maintain stability, backed by a basket of assets.

Stablecoins backed by multiple assets:

MakerDAO (DAI): Uses multiple collaterals, such as Ether (ETH) and other assets, to maintain stability.
Algorand (USDA): Backed by a diverse basket of assets, including stablecoins and cryptocurrencies.

In short, stablecoins are a cryptographic innovation that has revolutionized the financial world by providing stability and a wide range of applications, from fast transactions to financial inclusion and asset management.