Stablecoin

Stablecoins are cryptographic tokens. Stablecoins can be pegged to a relevantly stable underlying asset (i.e., fiat, commodity, financial instrument), or they may be pegged algorithmically. The general goal of a stablecoin is to hold a relatively stable value based upon what it is being pegged to; this does not always mean a stablecoin is trying to equate to one US dollar or one Euro but rather to the asset value it is being pegged. Comparing tokens to cryptocurrencies (such as BTC, ETH, otherwise referred to as payment tokens), both are decentralized, and can be used as a store of value and a medium of exchange. However, unlike cryptocurrencies which are the native assets of a blockchain such as Bitcoin or Ethereum, crypto tokens are created by platforms and applications that are built on top of an existing blockchain and are based on smart contracts. In some cases, they may represent an asset, thus, being considered a security and being subject to securities law requirements.

Stablecoins are usually issued by privately-owned enterprises and have been introduced to address the high price volatility of cryptocurrencies (i.e., bitcoin, ether, etc.). Leveraging the underlying blockchain technology, they can be easily transferred from one digital wallet to another and may be used to facilitate faster and cheaper cross-border fund transfer and remittances. Stablecoins are also used in Decentralized Finance (DeFi) to leverage opportunities in cross-exchange arbitration, lending and borrowing. As the technology is continuously evolving, stablecoins are proliferating, can take many forms and can reference a variety of assets.

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