Types of 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.

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.

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.

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.

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.

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?

Disclaimer