How is stablecoin different from other cryptocurrencies?

Asked 2 years ago

I have a very limited knowledge of cryptocurrency and yield farming, but have recently begun learning more about it from my husband. He keeps talking about stablecoin in terms of yield farming, and I'm struggling to get a grasp of it. How is stablecoin different from other cryptocurrencies?

Robby Reyes

Wednesday, June 01, 2022

A stablecoin is a cryptocurrency whose value is tied to a stable reserve asset like the US dollar or a commodity like Gold. Stablecoins offer an alternative to the high volatility of regular cryptocurrencies, like Bitcoin, Ethereum, and Ripple, which has made such coins less suitable for payments. Therefore, stablecoins serve best as a medium of exchange than other standard cryptocurrencies. There are three main types of stablecoins:

Fiat-collateralized stablecoins – they maintain a 1:1 reserve of fiat money. Examples include Tether (USDT).

Crypto-collateralized – they are pegged to other cryptocurrencies in an over-collateralized ratio to avoid volatility. Examples include MakerDAO’s Dai token.

Algorithmic stablecoins – instead of holding reserve assets, they maintain stability by regulating their supply through algorithms. Examples include TerraUSD (UST).

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