Stablecoins have been known to be investors’ safe option to invest (although it feels more like saving than investment) in cryptocurrencies. This is not surprising as it helps them escape the risk of loss associated with the highly volatile crypto market.

As of the time of writing (7th December 2023), the total stablecoins market cap is $129 billion, according to DeFiLlama stats.

Although this class of cryptocurrencies is deemed very stable, unforeseen events can still destabilize them. For instance, the TerraUSD (UST) case. TerraUSD, which was supposed to maintain a stable peg of $1 fell to 35 cents.

While you may be familiar with just USDT, USDC, and DAI, there are over a hundred more stablecoins out there and they are categorized into different types. This article will shed light on what stablecoins are, the types of stablecoins we have, and their examples.

What are Stablecoins?

Stablecoins are a class of cryptocurrencies whose value is tied to a different asset to help maintain stability. Like other cryptocurrencies, they are minted on the blockchain, but unlike other cryptocurrencies that are not pegged to other assets, these are backed by external reserves that keep them stable.

Stablecoins have their values revolving around $1.

Now that you know what stablecoins are, let’s discuss the types of stablecoins out there.

Types of Stablecoins

There are various types of stablecoins each with its way of being pegged to the value.

Fiat-backed stablecoins: these are by far the most popular type of stablecoins. As the name implies, they are backed by fiat currencies in a ratio of 1:1. The most popular fiat-backed stablecoins are Tether (USDT) and USD Coin (USDC) which are pegged to the US Dollar.

Here is a list of other fiat-backed stablecoins and the fiat currencies they are backed by

~ TrueUSD (TUSD), pegged to the US Dollar in a ratio of 1:1

~ Euro Coin (EURC), tied 1:1 to Euro

~ Binance USD (BUSD), pegged 1:1 to the US Dollar

~ GYEN, backed by the Japanese Yen

~ GBPT, pegged 1:1 to British Pound Sterling

~ Gemini Dollar (GUSD), backed by the US Dollar

~ Stasis Euro (EURS), backed by Euro

~ Pax Dollar (USDP), pegged to the US Dollar

~ Binance GBP, tied 1:1 to Great Britain Pound

~ CADT, pegged 1:1 to the Canadian Dollars

~ NZDD, pegged 1:1 to New Zealand Dollar. I published a piece about it some weeks back.

~ Silver Dollar (SLVD), valued at a ratio 1:1 with the US Dollar

Commodity-backed stablecoins: these stablecoins have values pegged to real-world commodities or assets such as precious metals (e.g. Gold), real estate, etc. The commodities they are backed by give the stability of their value. These stablecoins enable expensive assets to be accessible and affordable by all.

Here is a list of other commodity-backed stablecoins and the commodities they are backed by:

~ Paxos Gold (PAXG) is pegged 1:1 to one troy ounce of a 400-ounce London Good Delivery gold bar. The actual gold is stored in a vault in London. PAXG can be redeemed for real gold.

~ Tether Gold (XAUT) is backed, on a ratio of one XAUT to one ounce of gold, by a reserve of gold stored in a vault in Switzerland.

~ SilverTokens (SLVT) is an ERC-20 token backed by real silver. 1 SLVT is pegged to 1.0401 ounces of silver.

~ PlatinumCoin is also an ERC-20 coin representing 1/1000th of an oz. of 99.9% pure Platinum. Physical Platinum is stored in vaults for holders to redeem.

~ GIFT is an African-developed digital asset backed by gold. I wrote a short piece about it.

~ Digix Gold (DGX) is one of the oldest stablecoins backed by gold.

~ ZipangCoin (ZPG) is a stablecoin launched last year and valued at 1 ZPG to 1 gram of gold.

Cryptocurrency-backed stablecoins: these are stablecoins backed by reserves of other cryptocurrencies. Since the reserve cryptocurrencies are highly volatile, these stablecoins are overcollateralized, meaning that the cryptocurrencies held in reserve are usually higher in value than the stablecoins’ value. The reserve of cryptocurrencies is used as collateral for issuing the stablecoin.

Examples of crypto-backed stablecoins are MakerDAO, DAI, Wrapped BTC (WBTC), crvUSD, Liquity USD (LUSD), eUSD which is backed by other stablecoins, etc.

Algorithmic stablecoins: these are stablecoins that use algorithms to maintain their value and are not backed by a reserve of cryptocurrencies. The supply of this type of stablecoins is usually controlled by computer algorithms

Remember TerraUSD? It was an algorithmic stablecoin.

Other examples of Algorithmic stablecoins are Frax (FRAX), Decentralized USD on Tron (USDD), Magic Internet Money (MIM), Ampleforth, etc.

Note: Some stablecoins are classified as hybrid because they fall under at least two types. For instance, FRAX is an algorithmic and a crypto-backed stablecoin.

P.S: CBDCs are not to be mistaken or considered stablecoins even though they represent their various fiat currencies on a peg of 1:1.

They are merely digital assets and not cryptocurrencies because they are not minted on the blockchain like stablecoins are.