Stablecoins are crypto-assets whose value is controlled by active or automatic price fixing mechanisms with the aim of low volatility in relation to a national currency, a basket of currencies or other assets.
There are different types of stablecoins based on the mechanism used to stabilise their value:-
- Asset-backed stablecoins: these use other assets such as fiat currencies (e.g. USD), commodities (e.g. oil, gold, etc.) or even other crypto assets to collateralise their value.
- Algortihmic stablecoins: These can be collateralised by other assets, but do not necessarily have to be. Their main difference to asset-backed stablecoins is the strategy used to maintain the value of the algorithmic stablecoin: their supply is monitored and controlled by an algorithm in order to ensure greater value stability.