Types of stablecoins in blockchain

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Stablecoins are digital assets pegged to a specific asset, such as a currency or commodity, to maintain a stable value. They are designed to provide the benefits of cryptocurrency, such as fast and cheap transactions, while also avoiding the price volatility expected with most cryptocurrencies.

Several different types of stablecoins are available, including:

1. Fiat-collateralized stablecoins: These stablecoins are backed by a specific fiat currency, such as the US dollar, and are usually issued by a central authority. The value of the stablecoin is tied to the value of the underlying fiat currency, and the issuer holds a reserve of the fiat currency to back the stablecoin. The following are examples of fiat stablecoins.

  • Tether (USDT): Tether is a stablecoin pegged to the US dollar and issued by Tether Limited. It is the most widely used stablecoin, with a market capitalization of over $40 billion as of December 2021.
  • USDC: USDC is a stablecoin pegged to the US dollar and issued by the Centre consortium, a partnership between Circle and Coinbase.
  • Paxos Standard (PAX): Paxos Standard is a stablecoin pegged to the US dollar and issued by Paxos. This financial technology company, the New York State Department of Financial Services, regulates.

2. Crypto-collateralized stablecoins: These stablecoins are backed by a specific cryptocurrency, such as Bitcoin or Ethereum. The value of the stablecoin is tied to the value of the underlying cryptocurrency, and the issuer holds a reserve of the cryptocurrency to back the stablecoin. The following are the example of crypto stablecoins

  • DAI: DAI is a stablecoin pegged to the US dollar and is issued by MakerDAO, a decentralized autonomous organization (DAO) that uses smart contracts to manage the supply of DAI.
  • BitUSD: BitUSD is a stablecoin pegged to the US dollar and issued by BitShares, a decentralized exchange platform.

3. Algorithmic stablecoins: These stablecoins are not backed by any specific asset but rather use algorithms to maintain their value. The algorithms are designed to adjust the supply of the stablecoin in response to changes in demand to maintain a stable price. The following are examples of the algorithmic stablecoin.

  • Carbon: Carbon is a stablecoin designed to maintain a stable value relative to the US dollar. It uses a combination of smart contracts and market-making algorithms to maintain its value.
  • Basis: Basis is a stablecoin designed to maintain a stable value relative to the US dollar. It uses a combination of smart contracts and market-making algorithms to maintain its value.

4. Asset-backed stablecoins: These stablecoins are backed by a specific physical asset, such as gold or real estate. The value of the stablecoin is tied to the value of the underlying asset, and the issuer holds a reserve of the asset to back the stablecoin. The following are examples of asset-backed stablecoin.

  • Digix Gold (DGX): Digix Gold is a stablecoin backed by physical gold. Each DGX token represents 1 gram of gold, and the value of the stablecoin is tied to the value of the underlying gold.
  • RealT: RealT is a stablecoin that is backed by real estate. Each RealT token represents a fractional ownership interest in a specific property, and the value of the stablecoin is tied to the value of the underlying property.

5. Hybrid stablecoins: These stablecoins are backed by a combination of different types of assets. They are designed to provide the benefits of multiple types of stablecoins in a single asset.

For example, a hybrid stablecoin might be backed by a fiat currency and cryptocurrency. This could provide the stability of a fiat-collateralized stablecoin while also taking advantage of the decentralized nature of a crypto-collateralized stablecoin.

A combination of different fiat currencies, different cryptocurrencies, or a combination of both may also back hybrid stablecoins. The specific assets used to back a hybrid stablecoin will depend on the issuer and the specific goals of the stablecoin.

Few hybrid stablecoins are currently available, but they are an exciting development area in the stablecoin space. By combining the benefits of different types of stablecoins, hybrid stablecoins have the potential to offer a more stable and versatile asset for use in a variety of applications.

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