What Are the Three Main Types of Stablecoin Collateralization?
The three main types are fiat-backed, crypto-backed, and algorithmic. Fiat-backed stablecoins are pegged 1:1 to a currency like the USD and hold the equivalent in a bank account.
Crypto-backed stablecoins use volatile crypto as collateral, often over-collateralized. Algorithmic stablecoins use smart contracts and seigniorage to maintain the peg without direct collateral.
Glossar
Algorithmic Stablecoins
Architecture ⎊ Algorithmic stablecoins represent a class of cryptocurrencies designed to maintain a stable value, typically pegged to a fiat currency like the US dollar, through algorithmic mechanisms rather than relying on collateralization by traditional assets.
Fiat-Backed Stablecoins
Definition ⎊ Fiat-backed stablecoins are a category of cryptocurrencies designed to maintain a stable value by being pegged to a specific fiat currency, such as the US dollar, on a one-to-one basis.
Seigniorage Mechanism
Creation ⎊ Seigniorage mechanisms within cryptocurrency represent the economic rent derived from the issuance of new units of a digital currency, differing substantially from traditional fiat systems due to the transparent and often algorithmically governed supply schedules.