# Stablecoins - tl;dr

## Overview

- Stablecoins are designed to be cryptocurrencies without the volatility. Meaning one unit of a stablecoin typically equals one unit of some other "real", fiat currency like the US Dollar or EURO.

- Stablecoins are designed to dramatically reduce volatility relative to other, unpegged cryptocurrencies like Bitcoin.

- Stablecoins pursue price stability by reserving assets as collateral or by using algorithms that control the supply of the stablecoin.

## What Does This Mean?

- speed, privacy, and programmability of cryptocurrencies with the stability of government-issued fiat currency
- no bank account
- cheap transfers
- can travel through the web all over the world, and be accessible in places where cold hard cash is not

- purchasing power is maintained relative to pegged asset
- imagine if 2 pizzas cost 10k Bitcoin 10 years ago and still cost that much today.

## How Does This Work?

- Stablecoins are cryptocurrencies that attempt to peg their value to some external "stable" asset in reserve like the US Dollar, or other national currency, or a commodity like the price of gold that serves as collatoral for the stablecoin.

- There are several types of stablecoins to consider

- fiat-collaterized
- reserve of fiat currency assuring stablecoin's value
- gold, oil, reserves of USD, EURO, etc.
- reserves are regulated and audited and publicly verified by independent custodians like accounting firms

- crypto-collaterized
- larger amount of crypto **in reserve** than issued stablecoins
- Let's say I issue $1 million dollars worth of Ben stablecoins. And I back them with $3 million dollars worth of some other cryptocurrency in reserve.
- That means the crypto I'm pegging Ben Stablecoins to could lose up to 66% of its value, and, in theory, my Ben Stablecoin will still be worth that initial $1 million dollars.
- The crypto I'm pegging Ben Stablecoin to could also triple and be worth $9 million dollars, but my Ben Stablecoin will still be worth that initial $1 million dollars.

- algorithmic stablecoins
- may or may not hold a reserve, meaning they could be **non-collatorized**
- stability is maintained by an algorithm, which contols the supply of stablecoins.

## Possibilities

- safe store of cash for anyone, anywhere in the world without having to interact with a traditional financial system is very empowering and can help to quickly and securely send financial aid to areas in crisis.

- greater scrutiny from regulators could possibly help build more trust in stablecoins.
- token holders should be able to cash out with the equivalent in fiat currency at any time
- but it's unclear how regulation would affect some of the foundational principles of decentralization like access for all

- Double-collaterized currencies like USN, are pegged to two different currencies in order to maintain its 1-to-1 value, or parity with the US Dollar in any market cycle.

## Conclusions

###### tags: `tldr` `content`