Stablecoin: It's Definition And Types In The Cryptoecosystem

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Hi friends,

I am @ruthjoe, a moderator of steem4nigeria and I have decided to extend my niche to my friends in this community too.

I am here today to discuss about stablecoin in the cryptospace, let's have fun.

What Is Stablecoin

Stablecoin is known and understood to be a type of digital currency that is created for the maintainance of a stable value relative to a reference asset, most likely a fiat currency.

The stablecoin is very much different from traditional cryptocurrency like bitcoin, ethereum, etc which is susceptible to high market volatility.

Rather, stablecoin aims at giving a predictable and reliable value, making them very important for various use-case such as medium of payment, and daily transactional activity.

Types Of Stablecoin

There are different types of stablecoins in the crypto ecosystem and we will learn about some of them.

• Fiat Collateralized Stablecoin

Fiat collateralized stablecoin is a type cryptocurrency designed stablecoin that reducing price volatility through the pegging of their value to a stable assets or a fiat currency.

In a fiat collateralized stablecoin, their key component consist of a smart contract system used for the issuance and redeeming of tokens, a reserve of fiat currency kept in a custodial account, and a mechanism for the maintainance of the stable value of the cryptocurrency.

The fiat collateralized stablecoin is most times backed by a fiat currency that is stored in the bank's account.

With this reserve, stability of cryptocurrency is assured as the bank ensures that each token issued is being backed by it's equivalent in fiat currency.

• Crypto Collateralized Stablecoin

A cryptocurrency collateralized stablecoin is known to be a type of stable digital asset that get it's stability from the backing of a pool that consist of cryptocurrency assets.

The crypto collateralized stablecoin is different from the fiat collateralized stablecoin that is usually being pegged to a fiat currency.

Rather the value of the crypto collateralized stablecoin is being maintained through the blockchain technology and smart contracts mechanism.

The concept of stablecoin was brought about to bring a solution to the challenge of a highly volatile cryptocurrency market.

• Algorithmic Stablecoin

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Algorithm stablecoin is a unique type of stablecoin in the cryptospace, and it is designed to maintain price stability through the use of algorithmic mechanism.

This kind of stablecoin is quite different from the traditional stablecoin that greatly depends on collateral backing of fiat currency or other assets.

The aim of algorithmic stablecoin is the provision of a predictable and reliable price value, that makes them useful for several services such as remittances, digital payment and smart contract execution on the blockchain.

The principle of algorithmic stablecoin is that the algorithm helps to adjust the supply of the coin depending on the condition of the market, so as to maintain price stability.

A combination of mechanism is being leverage by this coin such as smart contract, algorithm adjustment and decentralized governance for the maintainance of stability.

• Commodity Collateralized Stablecoin

This type of stablecoin can be explained to be a type of stablecoin that has its value pegged to the value of physical commodities, thus mitigating volatility and providing stability in the cryptospace.

With this type of stablecoin, stability is being achieved by pegging the value of the coin to Precious commodities like metals, energy resource and agricultural products.

This financial instrument is a combination of blockchain technology, elements of finance and commodity market for the emergence of a solution for a stable store of value in the cryptospace.

CONCLUSION

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The emergence of stablecoin is a very beautiful Initiative, as it helps to maintain a stability in a highly volatile market.

As we continue our discussion, we will learn about the Advantages of stablecoin.