STABLECOIN - IMPORTANT FACTS YOU NEED TO KNOW ABOUT THIS CRYPTOCURRENCIES

They do not use any form of collateral, but instead depend on automated protocols that adjust the supply of stablecoins to maintain price stability.

One way to do this is by manipulating the supply and demand of stablecoins through a process called “minting” and “burning”.

It is important to note that algorithmic stablecoins are often more subject to high volatility and higher risk of price fluctuations compared to fiat-backed stablecoins.

Value stability is achieved in several ways, but the most common way is through the use of collateralization – that is, the stablecoin issuer holds a certain amount of assets, such as cash, securities or other cryptocurrencies, that guarantees the value of each stablecoin that is issued.

For example, for each stablecoin issued, the issuer could hold US$1 in cash or securities to ensure stablecoin price stability against the dollar.

Algorithmic stable cryptocurrencies may or may not hold reserve assets.

Their primary difference is in the strategy of maintaining the stability of the value of a stable cryptocurrency by controlling its supply using an algorithm, basically a computer program that executes a preset formula.

In the crypto-world, traders often use stablecoins to conduct transactions without being affected by significant price volatility in cryptocurrencies.

They are also used to transfer money between different exchanges or to buy other cryptocurrencies without exposure to high risks.