Stablecoins - 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.

Several methods achieve value stability, but the most common method is through collateralization – that is, the stablecoin issuer holds a certain amount of assets, such as cash, securities, or other cryptocurrencies, to guarantee the value of each stablecoin they issue.

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 and shield themselves from 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.