Clear DefinitionsStablecoin
1 min read
Pronunciation
[stay-buhl-koyn]
Analogy
A stablecoin is like a digital dollar—its value stays close to $1, enabling predictable transactions.
Definition
A cryptocurrency designed to maintain a stable value relative to a reference asset, typically fiat currency like USD.
Key Points Intro
Stablecoins achieve stability via:
Key Points
Fiat collateral: Backed 1:1 by reserves in bank accounts.
Crypto collateral: Overcollateralized by other on‑chain assets.
Algorithmic: Uses supply adjustments to maintain peg.
Hybrid models: Combine collateral and algorithmic mechanisms.
Example
USDC is a fiat‑backed stablecoin where each token is redeemable for $1 held in regulated bank reserves.
Technical Deep Dive
Collateralized stablecoins lock assets in a smart contract; redemptions burn tokens and release collateral. Algorithmic designs use bonding curves and autonomous market operations: if price > peg, mint supply; if price peg, burn supply. Oracles feed price data to rebase functions.
Security Warning
Collateral reserve audits are critical; lack of transparency can lead to depegging events.
Caveat
Stablecoins carry counterparty and smart contract risks despite price stability.
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