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Algorithmic Stablecoins

An overview of algorithmic stablecoins, their risks and opportunities
Binance Research (Stefan Piech)

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  • Stablecoins aim to bring together characteristics of crypto native coins including censorship resistant digital transactions and the price stability of traditional financial assets such as the US dollar, oftentimes by pegging their value to an underlying asset

  • Stablecoins are non-speculative in nature and oftentimes also more centralized than their more volatile counterparts. Presently, centralized stablecoins like Tether, BUSD, and USDC are still dominating the market

  • Algorithmic stablecoins try to maintain their peg by controlling circulating supply. In an ideal situation, price and supply move simultaneously, allowing the price to stay stable

  • Due to their nature, algorithmic stablecoins come with a base level of underlying fragility

  • So far, over-collateralization, meaning collateralized with more than 100%, has proven to be one of the best risk-mitigating factors when it comes to algorithmic stablecoins

  • Stablecoins are often considered the most viable tool for crypto mass-adoption, integrating real-world payments and applications with the cryptocurrency space

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