3 Main Types of Stablecoin

  1. Traditional asset-backed
  2. Crypto asset-backed
  3. Algorithmic

While the simplicity of traditional asset-backed stablecoin solutions offer comfort from the simple explanation, there are other means of achieving stability in crypto without a dependence on off-chain audits. Both users and businesses should place greater emphasis on highlighting upcoming projects such as Reserve, Carbon or Stable so that the market may test the range of attempts at stability and security such that the ecosystem may migrate to one of these ingenious projects that solve the issue.

Traditional Asset-Backed

Traditional asset-backed stablecoins are currently the most successful form of tokenized assets. They are effectively units of tokenized fiat. This category of stablecoins rely on a trusted custodian and on off-chain audits to monitor the integrity of the system. Example(s): Tether, USD Coin, TrueUSD

 

As of right now, Tether is the marquee stablecoin and will likely continue to make up the overwhelming majority of daily stablecoin trading volume, particularly in the short term.

 

Crypto Asset-Backed

Crypto asset-backed stablecoins are operated by smart contracts which require the user to deposit crypto-collateral in order to mint a unit of the stablecoin. Therefore, a trusted third-party is not required to maintain the stability of the token. In the event of a price drop, below a specified threshold, a smart contract will automatically liquidate the user’s collateral asset to ensure the reserves are always maintained. Example(s): Dai

 

Algorithmic

Algorithmic stablecoins do not rely solely on a reserve and use an actively adjusted supply to match with demand to create stability. Like the crypto asset-backed stablecoins, algorithmic stablecoins have the benefit of independence from the need to trust third parties. However, at this stage, there are yet to be any major algorithmic stablecoins widely adopted in the market. Example(s): Carbon, from the Hashgraph protocol.

 

How To Trade Stablecoins?

There are a number of stablecoins supported by and available on a variety of major exchanges. If you intend to purchase a small amount, this is the easiest form. For larger transactions, there are better ways to execute the trades.

Alternatively, you may look to trade directly with an over-the-counter desk (OTC) or a brokerage like Caleb & Brown, that conducts the transactions through fiat bank wires.

Looking for more information?