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  1. Cryptonomics

Collateralized Stablecoin

PreviousCollateral TokensNextFiat currency

Last updated 2 years ago

Taken from: https://coinmarketcap.com/alexandria/glossary/collateralized-stablecoin | All rights reserved to the owners

A “collateralized stablecoin” is a stablecoin that is entirely or almost entirely backed by collateral held in a reserve.

A is a digital asset built on the blockchain that is designed to maintain a price peg at a designated price, most often $1. In order to maintain their use and legitimacy as a payment method, they must have some backing in fiat cash, cryptocurrency or on-chain tokens that it can be redeemed/swapped against. This backing is called collateral.

A “collateralized stablecoin” is a stablecoin that is entirely or almost entirely backed by collateral held in a reserve. Notable examples of fully-collateralized stablecoins include USDT, USDC and DAI. The collateral is used to provide holders of the token with an opportunity to redeem the tokens for U.S. dollars or other assets that can then be used in the real world.

Collateral that is committed to these stablecoins can vary between cash, commercial papers, bond purchases and more. The collateral itself can often be used for further investment purposes to improve capital efficiency. Stablecoins that fully commit their collateral to onchain assets like crypto rather than traditional financial bonds/paper are often referred to as “decentralized stablecoins.”

stablecoin