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What is Fiat and Crypto Collateralize Stablecoin (Stablecoin) (Altcoin)

Life And Crypto
Web3 O’clock
Published in
3 min readOct 10, 2023

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  • Fiat Collateralize Stablecoin is a stablecoin that is backed by a fiat ortraditional currency like the U.S. dollar and it’s value is also pegged to fiat currency.
  • Two of the most famous examples of Fiat Collateralize Stablecoin is Tether (USDT) and Binance USD (BNB-USD)
  • By pairing a fiat currency with a stablecoin, it’s literally can be used to withdraw fund very quickly. This is a very important feature for managing business or personal finance.
  • In the crypto exchange business, Fiat Collateralise Stablecoin usually is use by a certain crypto exchange to inject liquidity (to make it more easy to withdraw money) in the market by drawing from fiat currency reserves.
  • Crypto Collateralize Stablecoin is a stablecoin that is back by a combination of cryptocurrency but it’s value was pegged to a fiat currency.
  • Most popular examples for Crypto Collateralize Stablecoin is MakerDAO (DAI) and EOSDT token
  • The easiest but not really accurate way to explain this type of stablecoin is basically this stablecoin act like the index fund (a fund that was form by a portfolio of stock or bond). The crypto that back the Crypto Collateralize Stablecoin act like the stock in the index fund.
  • The diversifying of crypto that was done in the Crypto Collateralize Stablecoin make it a lot more stable than the other type of stablecoin.
  • You might ask why, so imagine if a stablecoin is backed by only one crypto, if the crypto go down in value the stablecoin will follow it and vise versa because there is no diversifying in the porfolio.
  • So now imagine if a stablecoin is back by a lot of crypto, even if half of the crypto that backed that stablecoin go down in value, it’s not going to have to much impact on the value of the stablecoin because the other half still can cover most of the losses that the other half has done especially if it go up in value. But in worst case scenario where all of the crypto that backed that stablecoin go down in value, the stablecoin will follow.
  • This type of stablecoin is very important in the DeFi landscape because it’s basically creating a structure that act as a stronger way to tackle price fluctuations (price going down) that was cause by underlying collateral (lack of thing or asset to backed a crypto value).

Thanks for reading and as always keep learning about crypto everyday.

Follow and subscribe my other writing platform, What Crypto Newsletter. Also, I highly appreciate your support toward The Crypto Archives and if you want to show me more support, buy me a Crypto Coin using the link here🚀🚀🚀.

Feel free to read my other articles:

  1. What is Cryptograph
  2. What is Transcation
  3. What is Block

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(DISCLOSURE: This article contain affiliates and referral link for a certain cryptocurrency product or exchanges. This article also is not a financial advice and only for educational purpose.)

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Web3 O’clock
Web3 O’clock

Published in Web3 O’clock

A global platform for promoting & fostering startup ecosystem in Web 3.0 space by publishing startup stories, struggle, funding updates and entrepreneurial journeys.

Life And Crypto
Life And Crypto

Written by Life And Crypto

Beginner Blogger - Crypto Enthusiast - Cars Enthusiasts - Gaming Enthusiasts - Money - Life - The Crypto Archives - Music Lover

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