Last Updated: February 7, 2022

Equa: What Is a Stablecoin?

What Is a Stablecoins?

A Stablecoin is a cryptocurrency type. The value of a stablecoin is determined by an external asset that it is tied to. This is what makes it different than other cryptocurrencies and makes stablecoins much less volatile.

Types of Stablecoins:

1. Fiat Backed Stablecoins

Stablecoins that are backed by a fiat currency are the most common. This type of stable coin is usually valued at a 1:1 ratio with the fiat currency it is being backed by. For example, if you have 1 fiat backed stablecoin that is being backed by the US dollar, you have the value of 1 US dollar. Any currency with strict regulations is able to back a stablecoin.

2. Commodity Backed Stablecoins

Commodity backed stablecoins are as they sound, backed by a non currency asset. Traditional exampled of these assets are gold or silver. The commodities that can back stablecoins has expanded into things like oil and even real estate. These assets can appreciate but also depreciate over time making them no the most attractive stablecoin option but more stable than others.

3. Crypto Backed Stablecoins

Crypto backed stablecoins are backed by other cryptocurrencies. Being backed by other cryptocurrencies makes it the most volatile of the four stablecoin types. Because of the volatile nature of crypto, these stablecoins are far from a 1:1 ratio. Generally for every 1 stablecoin there is a large number of the cryptocurrency being held as collateral.

4. Algorithmic Stablecoins

Algorithmic stablecoins are also known as non collateralized stablecoins. These stablecoins are backed by by a series of smart contracts and algorithms that stabilize the coin using control over supply.

Conclusion:

Many businesses are critical of receiving payments in any crypto. Stablecoins are easing the worry and making it so businesses can accept crypto payments without the worry of it losing money the next day. Stablecoins can bridge industries into the next financial phase and move crypto to the top of everyone’s list.
For more information on crypto and other topics, check out Equa’s blog.