What Is a "Stablecoin," and What Are the Three Main Types of Stablecoin Collateralization Mechanisms? ⎊ Path

What Is a “Stablecoin,” and What Are the Three Main Types of Stablecoin Collateralization Mechanisms?

A stablecoin is a cryptocurrency designed to have a stable value, typically pegged to a fiat currency like the US Dollar. The three main collateralization mechanisms are: 1) Fiat-backed (e.g. holding USD reserves); 2) Crypto-backed (e.g. over-collateralized with volatile crypto assets); and 3) Algorithmic (e.g. using a smart contract to dynamically adjust supply without direct collateral).

Compare the Capital Efficiency of Fiat-Backed Vs. Over-Collateralized Stablecoins

What Are the Two Main Types of Stablecoin Collateralization?

What Is the Difference between a ‘Fiat-Backed’ and a ‘Crypto-Backed’ Stablecoin?

What Is the Primary Difference between an Algorithmic and a Fiat-Backed Stablecoin’s Peg Mechanism?

What Is the Primary Difference between Algorithmic and Fiat-Backed Stablecoins?

What Is the Difference between Fiat-Backed and Algorithmic Stablecoins in Terms of Peg Risk for Derivatives?

What Are the Differences between Asset-Backed and Algorithmic Stablecoins?

What Is the Difference between an Algorithmic Stablecoin and a Fiat-Backed Stablecoin for Treasury Holdings?

Glossar

Stablecoin

Instrument ⎊ Stablecoin refers to a class of cryptocurrency designed to maintain a stable market value, typically pegged to a fiat currency, which is essential for collateralizing margin accounts and settling cash-settled options in the derivatives market.

Collateralization Mechanisms

Mechanism ⎊ Collateralization mechanisms, within cryptocurrency, options trading, and financial derivatives, fundamentally address counterparty risk by securing obligations with assets.