The idea of stable coins is in the name, stability. Overcome the **price volatility** of recreating traditional financial products on the blockchain. ### 3 types #### Centralized Fiat-Collateralized Stablecoins - 1:1, Same amount of stablecoin value is held by a bank in Fiat, - Eg. USDC by Coinbase - $1000 USDC = $1000 FIAT in a bank - Trust issuing entity and underlying currency #### Decentralized crypto-collateralized stablecoins - No central operator / user agreement - Anyone can use them - Not directly backed by FIAT - $1000 of coin is backed with atleast $1000 of (highly volatile) crypto - Peg Mechanism for $DAI by Maker - DAI can be "minted" by anyone in the Maker system by locking up collateral (primarily ETH) and taking out a loan by DAI - The collateral provided needs to be greater than the amount borrowed so that the loan is overcollateralized. - Complexity is like trying to understand monetary policy - Smart Contract Risk and Possibility of DAI breaking the peg #### Decentralized Algorithmic Stablecoins - No collateral backing system - Rely on algorithms for price stability All you need to know to understand stable coins is that they are crypto tokens that are pegged, or equal a real world asset. (Like the US dollar) DAI, for example, has all of the properties a crypto currency, but 1 DAI will always = $1 US Dollar. ![[Pasted image 20211009185718.png]] ### List of Stable Coins - DAI = $1 US dollar. (Decentralized) - USDC = $1 US dollar. (Owned by Coinbase) - USDT = $1 US dollar (Centralized) - sUSD = $1 (decentralized) - TUSD = $1 (centralized & regulated) - GUSD = $1 (centralized & regulated) ## Stable Coins: - DAI (decentralized) - USDC (centralized) - USDT (centralized) - TrueUSD (centralized) - PAX (centralized) - sUSD (decentralized) - GUSD (centralied) - alUSD