Stablecoin Taxonomy: Distinguishing the Types of Price-Stable Cryptocurrencies
What you need to know about stablecoins
A stable coin is a type of cryptocurrency that is pegged to a specific asset, such as the US dollar or gold, in order to stabilize its value. This can be useful for investors and traders who want to avoid the volatility of traditional cryptocurrencies like Bitcoin or Ethereum. There are several different types of stable coins, each with its own unique characteristics and uses.
1 — Fully collateralized stable coins
These stable coins are backed by a specific asset, usually a fiat currency like the US dollar, at a 1:1 ratio. This means that for every stable coin in circulation, there is an equivalent amount of the backing asset being held in reserve. One example of a fully collateralized stable coin is Tether (USDT), which is backed by the US dollar.
2 — Partially collateralized stable coins
These stable coins are also backed by a specific asset, but the backing is not necessarily on a 1:1 ratio. This means that there may not be enough collateral in reserve to fully cover the value of all the stable coins in circulation. Partially collateralized stable coins rely on other mechanisms, such as…
