A stablecoin is a digital asset that is pegged to a stable asset or perceived as stable such as fiat currency, precious metals, or other cryptocurrencies. In this article, we will discuss the different types of stablecoins that exist today.
1. Fiat-collateralized stablecoins
Fiat-collateralized stablecoins are the most common type of stablecoin. These coins are backed by fiat currency such as the US dollar, Euro, or Japanese yen. For example, Tether (USDT) is a fiat-collateralized stablecoin that is pegged to the US dollar. Each Tether token is backed by one US dollar.
2. Cryptocurrency-collateralized stablecoins
Cryptocurrency-collateralized stablecoins are backed by other cryptocurrencies such as Bitcoin or Ethereum. The value of these stablecoins is determined by the value of the underlying cryptocurrency. For example, Dai (DAI) is a cryptocurrency-collateralized stablecoin that is backed by Ethereum. The value of Dai is pegged to the US dollar.
3. Commodity-collateralized stablecoins
Commodity-collateralized stablecoins are backed by commodities such as precious metals like gold or silver. The value of these stablecoins is determined by the value of the underlying commodity. Our DaVinci Gold Tokens are commodity-collateralized stablecoins that are backed by physical gold. Each DaVinci Gold Token is backed by a 1oz gold coin (DVGO) or a 1 kilo gold bar (DVGK). The price of our tokens is pegged to the price of gold.
4. Algorithmic stablecoins
Algorithmic stablecoins are backed by a computer algorithm that controls the supply of the stablecoin. The algorithm adjusts the supply of the stablecoin based on the demand for the coin. For example, Ampleforth (AMPL) is an algorithmic stablecoin that adjusts its supply based on market demand. When demand for AMPL is high, the algorithm increases the supply of the coin.
5. Hybrid stablecoins
Hybrid stablecoins are stablecoins that use a combination of different collateral types to maintain their stability. For example, Reserve (RSV) is a hybrid stablecoin that uses a combination of fiat currency and cryptocurrency as collateral.
6. Non-collateralized stablecoins
Non-collateralized stablecoins are not backed by any assets. Instead, they use a system of smart contracts to maintain their stability. For example, Basis Cash (BAC) is a non-collateralized stablecoin that uses a combination of smart contracts and an algorithmic system to maintain its stability.
Not all stablecoins are created equal!
There have been occurrences of stablecoins losing their value in the past.
One example of a stablecoin that has lost its value in the past is Tether (USDT). In October 2018, the price of Tether dropped to as low as $0.88, a significant deviation from its peg to the US dollar. This was due to concerns about Tether’s reserves and the lack of transparency around its operations.
Another example is Steem Dollars (SBD), a stablecoin that was pegged to the US dollar and backed by the Steem blockchain. In 2017, the price of SBD deviated significantly from its peg, dropping to as low as $0.70. This was due to a combination of factors, including market manipulation and changes in the Steem blockchain’s reward system. While SBD has since regained some stability, it serves as a reminder that even stablecoins can be subject to volatility and risks.
It’s worth noting that not all stablecoins are created equal, and some are designed to be more resistant to market risks and volatility than others.
Most importantly, with our DaVinci Gold Tokens, you will own stablecoins with no counterparty risk and you will own physical investment gold!
Unlike a gold-backed token like PAX Gold, our DaVinci Gold Tokens are digital titles of ownership. You actually own the 1oz gold coins or 1 kg gold bars allocated to the tokens, and not merely a part of a co-owned 400 oz gold bar.
Our structure does not allow us to create tokens that are not backed by the physical gold that is allocated to them.
Thus, you can ask for delivery of the gold coins or bars that you own at any time.
