Core Concept

Core Concept: Stablecoins & CBDCs

Learn about Stablecoins, which are being utilized by many DeFi applications as a method of stable value, and their cousin CBDCs.


Stablecoins

While most cryptocurrencies are speculative in nature, it’s come as no surprise that efforts have been made to match some coins with a specific fiat currency, like USD. In order to match a currency, a crypto coin needs to remain pegged to the exact price, for example being able to exchange $1 USD with 1 USDC. Mechanisms are used to ensure that the crypto-to-fiat peg remains intact, and usually rely on buying and holding the exact amount of fiat vs crypto dollars, or, using some kind of algorithmic approach to keep the coin price at $1 USD.

The latter model is growing in popularity, and there are a number of algorithmically stable coins such as DAI, and UST, which use a variety of software mechanisms to ensure a peg to $1 USD remains in place.

Below is the total market caps for some of the top stablecoin cryptocurrencies:

Screenshot 2022-09-27 103106
Some stablecoins are controlled by specific organizations, such as USDC by Circle, and USDT by Tether. Alternatively, stablecoins can be decentralized, such as DAI by MakerDao, or RAI by Reflexer Labs.

CBDCs

Lastly, there is a significant amount of ongoing discussion, and debate, about CBDC’s, or Central Bank Digital Currencies. A CBDC, instead of being issued by a corporation or a decentralized project, would be issued and controlled directly by a central bank or government, and regulated just like fiat currency or cash. CBDC’s could play a major role in the future of money and simplifying the traditional complexity of financial infrastructure.

CBDCs are often not represented by a token, but rather take advantage of the ledger portion of blockchain technology.

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