Stablecoins

Stablecoins Notes

A cryptocurrent asset whose buying power stays relatively the same.
A non volatile cryptocurrency asset.
Useful as a medium of exchange due to the volatility of most cryptocurrencies.
Can be thought of as digital cash.
Maybe bed pegged to a currency like the US Dollar, tangible assets such as gold or the value of another cryptocurrency.

Pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.

Properties

Pegged
- Value pegged to another asset.
- For every coin ( $1 ) minted a dollar or reverse asset is held.
- eg : tether.
Floating Value
- Used math and various mechanisms to keep the buying power the same over time.
- Value changes to keep the buying power the same.

Governed
- Requires human intervention to control the price.
- Considered centralized.
- Regulated and regularly audited.
- Requires a central entity to inject collateral in the system.
Algorithmic
- Code/ smart contracts facilitates burning and minting of coins.
- Requires no human intervention.

Exogenous
- Collateral exists outside of the protocol.
- Tether uses the US dollar as collateral, which exists outside of the protocol, hense it uses exogenous collateral.
- Dai uses mutliple cryptocurrencies and other stable coins as collateral, hence it users exegenous collateral.
Endogenous
- collateral exists inside the protocol.
- Terra used LUNA as collateral, which existed inside the protcol, hence it uses endogenous collateral.
Using endogenous collateral is dangerous when people lose faith in the collateral and the stable coin at the same time.