Stablecoin

There’s USDC which I’ve owned some of.

Stablecoins are a type of cryptocurrency designed to maintain a stable value, typically pegged to a fiat currency like the U.S. dollar (e.g., $1 = 1 stablecoin). They are widely used in cryptocurrency markets as a bridge between traditional currencies and crypto assets, providing the benefits of digital currencies without the price volatility of assets like Bitcoin or Ethereum.

Types of Stablecoins

1. Fiat-Backed Stablecoins*
   • Backed by reserves of fiat currency held by a central authority.
   • Examples: USDT (Tether), USDC (USD Coin).
   • Stability Mechanism:
     • For every stablecoin issued, the issuer holds an equivalent amount of fiat in reserve.
     • Users trust that the issuer has sufficient reserves to redeem the stablecoins 1:1 with fiat.
2. Crypto-Backed Stablecoins
   • Collateralized by cryptocurrencies (e.g., Ethereum) instead of fiat.
   • Examples: DAI (from MakerDAO).
   • Stability Mechanism:
     • Over-collateralization: Users deposit more cryptocurrency than the stablecoins they issue to account for volatility.
     • Smart contracts ensure that collateral can be liquidated if needed to maintain the peg.
3. Algorithmic Stablecoins
   • Not backed by fiat or crypto reserves. Instead, they rely on algorithms and market dynamics to maintain their value.
   • Examples: UST (TerraUSD), Ampleforth.
   • Stability Mechanism:
     • The supply of the stablecoin is adjusted dynamically via an algorithm (minting or burning) to maintain its peg.

Algorithmic stablecoins are kinda cool, but I guess it didn’t work.