How are stablecoins classified?

When it comes to stablecoins, you may first think of Tether (USDT). USDT is a token based on the stable value currency U.S. dollar (USD) launched by Tether. 1USDT=1 U.S. dollar. Users can use USDT and USD for 1 exchange at any time. :1 exchange. Tether strictly abides by the 1:1 reserve guarantee, that is, for every USDT token issued, its bank account will have a USD 1 fund guarantee.

Today let's take a look at the specific types of stablecoins on the market?

1. Legal currency-backed stablecoins:That is, the centralized institution will mortgage the assets held by the US dollar, RMB, etc. To put it bluntly, if you deposit 1 US dollar in the bank, a 1 US dollar USDT will be issued. The price can remain stable because if you can buy the coin for less than $1, you can exchange it with the issuer for $1, and vice versa. The only problem is that it relies on the issuer to be regulated properly and honor deposits and withdrawals the way they are supposed to.Pros: Easy to understand and use.Cons: Concentrated natureRisks: High reliance on the token issuer, if their investments are mismanaged, or if the issuer's company mismanages, the token faces death.Common currency types in the market include: USDT, USDC, TUSD, PAX, GUSD, etc.

2. Cryptocurrency-guaranteed stablecoins:That is, blockchain users will mortgage their digital assets on the blockchain. After the blockchain "locks" the mortgaged assets, a certain amount of stable coins will be issued according to the value of the mortgaged assets. When the value of the mortgaged assets declines, it needs to timely Supplement collateral assets to ensure the stability of the stable currency price.The encrypted currency guaranteed type is not issued and managed by an institution, but stored in encrypted currency as a guarantee on the smart contract, thus ensuring transparency and solving the problem of centralization. But its disadvantage is that the value of the encrypted currency that is kept as a guarantee is volatile. Once the mortgaged assets are cut in half overnight, when the value of your mortgaged assets is lower than the value of the stable currency, the value of the stable currency will have a large decline.Pros: Embraces the concept of decentralizationDisadvantages: Must have strong protocol designRisks: Dependence on protocol design and governance body (usually the body holding the governance token). Additionally, collateral is subject to volatile cryptoassets (crypto), an area of ​​concern regardless of protocol design.Common currency types in the market include: DAI, SNX, etc.

3. Unsecured stable currency (algorithmic stable currency):It is an algorithm to adjust the total amount of currency in the market, increase the market supply when the price of the stable currency is higher than the anchor price, and recover the supply when the price of the stable currency is lower than the anchor price, or provide arbitrage space to balance the price of the stable currency. The establishment of this model does not anchor real legal currency and does not need to mortgage stable currency. It is regulated by market will and algorithms, and the market is also called elastic currency.The purpose of unsecured stablecoins is to utilize stablecoins without collateral. The advantages of unsecured stable currency are decentralized, no need for secured loans, and the currency circulation can be automatically adjusted according to the automatic conversion ratio system. It is specially designed to regulate the issuance of tokens according to the demand forecast, and to maintain the price theoretically.At present, the algorithm stability ratio is still in a very early stage, and the price cannot maintain a very stable range, but the market believes that with the passage of time, some good projects will eventually move towards this range as the number of participants continues to increase. move closer.Pros: No collateral risk, simulates how money works in the real worldCons: Reliance on its "sovereign" fundsRisks: Risk of not having enough capital to sustain its sovereign. Just like real world currencies (like "Black Wednesday / Bank of England run"), sovereign debt can default, which can happen to these stablecoins as well.Common currency types in the market include: AMPL, ESD, BAC, BXC, etc.