![]() ![]() If it's a DeFi application that lets users borrow stablecoins against their cryptocurrency holdings, like Maker Protocol's DAI or Aave's new GHO stablecoin, then it's a crypto-backed stablecoin and will only fail under a perfect storm of specific and unlikely fringe conditions. If it's a company who holds cash in a bank account and publishes reports on their asset reserves, such as Tether's USDT or Circle's USDC, then it's a fiat-backed stablecoin and will only collapse if the company turns out to be lying about their reserves (which regulatory oversight protects against). If it doesn't say in the token's description, then following the website link and looking around on its official website will yield the answer. Often, a simple search on CoinMarketCap or CoinGecko will reveal if a stablecoin is fiat-backed, crypto-backed, or algorithmic. ![]() Keep in mind that stablecoins are vastly different from digital currencies, and digital dollars won't have the same problems or advantages as stablecoins. There also exists commodity-backed stablecoins, which are similar to fiat-backed but are pegged to a commodity instead. Finally, algorithmic stablecoins (UST) are backed by an algorithm that creates or destroys tokens to maintain their peg, and are the least stable. Crypto-backed stablecoins (DAI) are backed by " collateralized debt positions", cryptocurrency deposits used as collateral to borrow the stablecoin, and are less stable than fiat-backed stablecoins. Fiat-backed stablecoins (USDT, USDC) are backed by cash or " cash equivalents" held in a bank account, and are the most stable. 101 Blockchains discusses the three (plus one) types of stablecoins: fiat-backed, crypto-backed, and algorithmic (plus commodity-backed). ![]() While all stablecoins have a possibility for collapsing, the reason and likelihood for this depends upon the stablecoin's variant. Related: Stablecoin Exchange Curve Finance Hack Explained ![]()
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