What Is a Decentralized Stablecoin?
A decentralized stablecoin is a digital asset built on the blockchain that aims to maintain a stable price peg, usually at $1.
This provides stability to holders and offers a secure means of exchange.
Bridging Traditional Assets and Fiat Transactions
Stablecoins are intermediaries between holding traditional assets and transacting in the fiat system.
Centralized stablecoins are typically backed by off-chain fiat reserves and are connected to third-party custodians, such as banks.
The Role of Stablecoins
In contrast, decentralized stablecoins are fully transparent and non-custodial, with minimal or no third-party control.
All collateral backing is visible on a publicly verified blockchain, making the stablecoin more trustless and secure without relying on a single entity.
Decentralized stablecoins can be categorized into two types: crypto-collateralized and algorithmic stablecoins.
Stablecoins Innovation
Crypto-collateralized stablecoins allow for manual adjustment of the token supply through minting or burning, depending on the need.
Algorithmic stablecoins utilize smart contracts or algorithmic market operations controllers (AMOs) to manage and control the token supply automatically.