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Melinda

Stablecoins in cryptocurrencies

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Hi Melinda,

StableCoins are cryptocurrencies pegged to other assets. They are crypto-dollars that act as a stable  asset when trading crypto on exchanges.
They are currently used by crypto traders to move from one investment position to another flawlessly and create leveraged positions devoid of volatility.  
These cryptocurrencies aim to give price stability, unlike other highly volatile cryptos like Ether and bitcoin. The high volatility of other cryptocurrencies makes them unsuitable as a common currency. This comprises its purchasing power and use as a mode of storage, which is the backbone of any currency.
Stablecoins are backed by a reserve asset, and they endeavor to give price stability, confidentiality, scalability, redeemability, and decentralization. Stablecoins are a class of cryptocurrencies that try to base their market value on external references. They are therefore categorized according to the external reference they use as follows.
•    Crypto-Collateralized Stablecoins
These are stablecoins that use other cryptocurrencies as collateral. Given cryptocurrency is digital, units are issued using smart contracts. Regular monitoring and audits help reinforce the price stability of stablecoins. Examples include MakerDAO/DAI,celo, and haven.io, among others.
•    Fiat-Collateralized Stablecoins
These use fiat currency as collateral to issue an ideal number of crypto coins. The most popular reserve for stablecoins using fiat as collateral is the US dollar. Other than fiat currency, commodities and precious metals can be used as collateral. The custodians of these reserves are independent, and they subject them to regular audits to ensure they adhere to compulsory compliance. Examples include USDC, GUSD, tether and Gemini Dollar
•    Algorithmic or Non-Collateralized Stablecoins
These stablecoins do not use any reserve but use a mechanism like central banks do to maintain a stable price. They get their peg by using smart contracts and algorithms which control the supply of issued tokens. An example of algorithmic stablecoin is NuBits.

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