Stablecoin Types Vol. 2 — Cryptocurrency-Backed.
03 Jan 2023, 13:16
🌐Stablecoin Types Vol. 2 — Cryptocurrency-Backed🌐
We have previously spoken about stablecoins as such, and explored how Fiat-backed stables work. Now it’s time for Vol. 2 – cryptocurrency-backed stablecoins!
🎇While the notion of backing stablecoins with crypto may seem counterintuitive – after all, isn’t the idea of stablecoins to mitigate the high volatility that crypto is so known for – it actually makes sense when you take a closer look.
A cryptocurrency-backed stablecoin is highly decentralized and comes with a reserve of another cryptocurrency. The cryptocurrency in question is usually a comparatively stable one, such as Bitcoin or Ethereum. Most crypto-backed stables are overcollateralized to account for fluctuations in the market, and this overcollateralization acts as a form of stability protection designed to keep the stablecoin from depegging.
Stay tuned to find out about algorithmic stablecoins in our next post!💥