Types of Stablecoin Digital Currencies
Lets, learn little about smart-contract based programmed digital currencies pegged by different currencies, digital or physical assets. to the point without wasting more time on preface and introduction.
I assume that you’r aware about stablecoin and importance of stablecoin. if not, find a fundamental about stablecoin with smart contract programming from link given below
Blockchain is very powerful technology but highly price volatile. Stablecoin solve problem of price volatility of cryptocurrencies. Stablecoin is normal smart contract built on Ethereum ERC-20 or other blockchain technologies however it is pegged or supported by other entity in real world.
For Example: USDT is using real US Dollars as custodian. It has to be audited regular basis to ensure management team posses real US$ equivalent to amount of USDT tokens in the market. This is called Fiat-Backed stablecoin because real US$ is a custodian.
Let’s take another example of paxos.com , Paxos is regulated blockchain infrastructure which provided stable coin pegged by gold. PAXG is a digital currency pegged by Gold as a custodian. Look at value on coinmarketcap.
Pax Gold stands out because it is backed by an already established commodity. so it is called asset backed stablecoin. here, we have another type of stablecoin with gold as custodian so that it is known as Assets backed digital currencies.
mainly, there are 3 types of stablecoins , 1. collateralised , 2. non-collateralised and 3rd is hybrid or algorithmic stablecoins.
- collateralised is one which pegged by another real entity , commodity or assets.
- non-collateralised is not collateralised or pegged by any crypto or fiat currencies however it has to be audited regular basis and regulated by government or some authorities.
- Hybrid or Algorithmic stablecoin is based on complicated software program to maintain and regular fixed price of the algorithmic stablecoin.
Yes, i will not forget to share example of such algorithmic stablecoin but it might be difficult for you to understand how price stabilised through an algorithm.
have you heard about MakerDAO ? it is one algorithmic stablecoin in the market.
Conclusion : this article is not for blockchain programmer so this includes only fundamental about stablecoin and smart-contract.