Collateralized Stablecoin in Crypto

Collateralized Stablecoin is a digital asset that is fully or almost fully collateralized by collateral held in reserve.

What is Collateralized Stablecoin?

A stablecoin is a digital asset created on a blockchain that is designed to maintain a price reference to a set price, most often $1. To maintain its use and legitimacy as a means of payment, it has collateral in the form of fiat money, cryptocurrency or tokens on the circuit for which it can be redeemed/exchanged. The collateral is called a pledge.

Stubblecoin with collateral is fully or almost fully collateralized with collateral held in reserve. Examples of fully collateralized stubblecoins are USDT, USDC and DAI. Collateral is used to allow token holders to redeem the tokens for U.S. dollars or other assets.

Collateral for these stackcoins can be cash, commercial paper, bonds, and more. The collateral itself is often used for further investment purposes to increase capital efficiency.

Stablecoins that convert their collateral entirely into onchain assets rather than traditional financial bonds/bonds are often referred to as ‘decentralized stubblecoins.’

One of the limitations of collateralized stackcoins is that they require large amounts of capital for legitimacy and credibility, and their ability to remain stable depends on the underlying collateral. In other words = many stabelcoins require excessive collateral so that fluctuations in value can be absorbed. This differs from algorithmic stabelcoins, which use smart contracts to respond to supply and demand by buying, selling, and/or burning tokens to maintain a bind.

The founder of FRAX is Sam Kazemian. FRAX is a fractional algorithmic steblecoin that is partially secured and stabilized algorithmically, and the only fractional steblecoin that has maintained a peg since its inception. FRAX is open source and requires no permissions, creating a truly robust, scalable and stable asset for the future of decentralized finance.

Kazemian is a leading blockchain entrepreneur, crypto-enthusiast and co-founder of Everipedia, a blockchain-based knowledge base. Kazemian’s crypto journey began at UCLA in 2013, where he began mining cryptocurrency in his dorm room, and today he is a frequent guest lecturer at UCLA in cryptocurrency, computer science and entrepreneurship.

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