What is stablecoin-
Types of Stablecoins :
Stablecoins are categorized mainly into the following types:
1. Collateralized Stablecoins:
Collateralized Stablecoins are coins whose values are backed by specific collateral. They are further classified as:
a) Fiat-backed stablecoins
Fiat-backed stablecoins are pegged to the value of fiat currency. The first fiat-backed stablecoin was Tether (USDT) that brought the concept of a cryptocurrency pegged to the US dollar value and supported by reserves representing the total market capitalization. Other examples of fiat-backed stablecoins include PAXOS Standard and USD coin.
b) Asset-backed stablecoins
Asset-backed stablecoins are backed by other assets except for cryptocurrency or fiat. The asset-backed tokens are pegged to the price of assets, for example, gold, silver, diamond, oil, real estate and many more.
c) Crypto-backed stablecoins
Crypto-backed stablecoins are underpinned by cryptocurrency; however, they use protocols to ensure that the value does not vary with the backing token price. DAI token is a crypto-backed stablecoin supported by Ether and pegged to the US dollar value. It maintains its price via Maker Smart Contract that destroys and creates MKR tokens according to the fluctuations in ETH price.
2. Non-collateralized stablecoins
Also known as Seigniorage shares or algorithmic stablecoins, Non-collateralized stablecoins implement the basic principles of cryptocurrencies, which is decentralization. Since many crypto enthusiasts have argued that stablecoins should be focused around an asset but should use algorithms to derive value, the concept of non-collateralized stablecoins has come into the picture. The financial power in non-collateralized stablecoins does not rely on a central entity but a formula derived from demand-supply. Basis is one example of algorithmic stablecoins that raised $133 million from Bain Capital Ventures, Polychain Capital and GV and gained a lot of popularity.
How to create a Stablecoin?
Identify the type of stablecoin to be developed