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Stable Tokens Guide
  • What are Stable Tokens
  • Types of Stable Tokens
  • Stable Tokens Use Cases
  • Stable Token Benefits
  • Stable Tokens Regulation
  • Future of Stable Tokens

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HOME
NEWS
Stable Tokens Guide
  • What are Stable Tokens
  • Types of Stable Tokens
  • Stable Tokens Use Cases
  • Stable Token Benefits
  • Stable Tokens Regulation
  • Future of Stable Tokens
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  • HOME
  • NEWS
  • Stable Tokens Guide
    • What are Stable Tokens
    • Types of Stable Tokens
    • Stable Tokens Use Cases
    • Stable Token Benefits
    • Stable Tokens Regulation
    • Future of Stable Tokens
  • HOME
  • NEWS
  • Stable Tokens Guide
    • What are Stable Tokens
    • Types of Stable Tokens
    • Stable Tokens Use Cases
    • Stable Token Benefits
    • Stable Tokens Regulation
    • Future of Stable Tokens

Types of Stable Tokens

Stable Tokens are not all the same—they use different mechanisms to maintain their stability.

Fiat-Backed Stable Tokens


How They Work:

  • Pegged 1:1 to traditional currencies like the U.S. dollar (USD), euro (EUR), or pound (GBP).
  • Issuers hold reserves in cash or low-risk assets (such as U.S. Treasuries) to back each token.
  • This category includes both privately issued stable tokens and emerging government-backed initiatives.


Examples:

  • USDT (Tether) – One of the oldest and most widely used fiat-backed stable tokens.
  • USDC (USD Coin) – Issued by Circle with regular audits for transparency.
  • BUSD (Binance USD) – A regulated stable token issued with Paxos.
  • WYST (Wyoming Stable Token) – The first U.S. government-backed stable token, fully backed by cash and U.S. Treasuries.


Pros of Fiat-Backed Stable Tokens:

✅ High liquidity – Widely used and easy to convert.
✅ Price stability – Directly backed by real-world assets.
✅ Trusted collateral – Some (like WYST) hold reserves in U.S. Treasuries, adding security.

Cons:

❌ Centralized reliance – Trust in the issuer is required.
❌ Regulatory oversight – Compliance rules vary by jurisdiction.


Commodity-Backed Stable Tokens


How They Work:

  • Pegged to physical assets like gold, silver, or oil.
  • Issuers store the commodity as collateral.
  • Designed for investors looking for stability while holding real-world assets.


Examples:

  • PAXG (Paxos Gold) – Each token represents 1 troy ounce of gold stored in a vault.
  • Tether Gold (XAUT) – Another gold-backed stable token offering digital gold ownership.


Pros:
✅ Offers stability linked to tangible value.
✅ Allows digital ownership without storage concerns.

Cons:
❌ Lower liquidity than fiat-backed stable tokens.
❌ Price fluctuations depend on the underlying commodity.


Crypto-Collateralized Stable Tokens


How They Work:

  • Backed by other cryptocurrencies instead of fiat or commodities.
  • To manage volatility, these tokens require over-collateralization (holding more value than the issued tokens).
  • Uses smart contracts to manage reserves and maintain stability.


Examples:

  • DAI (MakerDAO) – Maintains a stable value using ETH and other crypto assets as collateral.
  • LUSD (Liquity USD) – A decentralized stable token backed only by Ethereum.


Pros:
✅ Fully decentralized – No central issuer or bank required.
✅ Transparent & programmable – Open-source smart contracts manage collateral.

Cons:
❌ More complex than fiat-backed stable tokens.
❌ Risk of liquidation – If collateral drops in value, holders may face losses.


Algorithmic Stable Tokens


How They Work:

  • Maintains stability using supply-demand algorithms instead of collateral.
  • Expands and contracts token supply dynamically to keep prices stable.
  • Some use seigniorage models or rebasing mechanisms to manage volatility.


Examples:

  • FRAX (Frax Finance) – A hybrid stable token that is partially collateralized and algorithmically adjusted.
  • AMPL (Ampleforth) – Uses a rebasing model where supply adjusts based on demand.


Pros:
✅ No reliance on reserves – Not dependent on fiat or crypto collateral.
✅ Decentralized and autonomous – Fully managed by smart contracts.

Cons:
❌ Historically unstable – Some projects (like TerraUSD) collapsed due to design flaws.
❌ Complex mechanics – Harder for average users to understand and trust.


Which Type of Stable Token is Best?


The right stable token depends on your goals and risk tolerance:


✔ For everyday transactions & payments → Fiat-backed stable tokens (USDT, USDC, WYST).
✔ For hedging against inflation → Gold-backed stable tokens (PAXG, XAUT).
✔ For decentralized finance (DeFi) → Crypto-collateralized stable tokens (DAI, LUSD).
✔ For experimental tech & innovation → Algorithmic stable tokens (FRAX, AMPL).
✔ For government oversight & regulatory clarity → WYST offers a transparent, state-backed option.

 

Next Steps in the Guide to Stable Tokens


Explore their real-world applications:


👉 Continue to 3. Use Cases of Stable Tokens


📌 1. Introduction to Stable Tokens – Learn what stable tokens are, how they work, and why they matter in the digital finance world.

📌 2. Types of Stable Tokens – Explore different categories and how they function.
📌 3. Use Cases of Stable Tokens – Learn how they are used in payments, trading, DeFi, and more.
📌 4. Stable Tokens Benefits and Risks – Understand the advantages and potential challenges.
📌 5. Stable Tokens Regulatory Landscape – Discover how governments and financial institutions are responding.
📌 6. Future of Stable Tokens – What’s next for Stable Tokens and digital finance?


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