![]() Such is the case with crypto backed stablecoins. Crypto Backed StablecoinsĬrypto can back other crypto as well. The reserve for the currency is administered through an independent custodian that is audited on a scheduled basis to ensure compliance. Most fiat backed stablecoins are backed with dollar reserves. Other forms of fiat include precious metals such as platinum or silver and commodities such as corn or oil. ![]() Stablecoins backed by fiat currencies like Chinese yuan keep a reserve of that currency as collateral. The most commonly used asset to collateralize stablecoins is gold, although many use diversified baskets of precious metals. Here are the major types: Commodity Backed StablecoinsĬommodity-backed stablecoins are stabilized with hard assets such as gold or real estate. There are many different kinds of stablecoins, differentiated primarily by the asset that backs them. The success of crypto based coins led to the Federal Reserve to announce an investigation into its own digital coin along with the governments and central banks of other countries. After bitcoin rose to almost $20,000 then fell by more than 50%, investors were looking for a less volatile crypto based store of value. Stablecoins began to rise in popularity after the 2017 mania. Stablecoins level the playing field without a need for either party to change back into fiat. Stablecoins are usually pegged to another asset with a stable value, but they may also be backed by an algorithm instead of 1:1 reserves. Some stablecoins, like Wrapped Bitcoin (WBTC), are pegged to other volatile cryptocurrencies.Ĭonsumers who are looking to buy or sell non-currency goods and services may experience a huge price change during or after the transaction. Usually they are intended to limit the volatility that investors experience when using crypto. Using Stability to Create ProfitabilityĪ stablecoin is a kind of cryptocurrency that mirrors another asset.
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