What are Dollar-backed Stablecoins – USDT & USDC?
General - August 25, 2020
Stablecoins are fundamental building blocks for the cryptocurrency and DeFi ecosystem. In this video, we explain what dollar backed stablecoins are using two examples – USDT and USDC.
Dollar-backed stablecoins are cryptocurrencies backed by US dollars. These coins are stable. This means that their price will not change. It will always be equal to $1. Because they remain stable despite volatile market movement, they are called stablecoins.
The most popular stablecoins is Tether or USDT. It has more trading volume than Bitcoin or Ethereum. USDT was created by iFinxex, the parent company of the cryptocurrency exchange Bitfinex. Tether is mainly used as an on and off-ramp on exchanges. It is especially popular in countries where people can’t buy cryptocurrencies with the domestic currency. China is an example of such a country.
Another stablecoin is USDC or USD Coin, created by Circle and Coinbase. USDC is a 1:1 dollar backed stablecoin. This means that for every 1 USDC in circulation, there is $1 backing it.
Other stablecoins include – Paxos Standard, TrueUSD and Gemini USD, the stablecoin created by the Gemini exchange. These are examples of fiat-backed or fiat-collateralized stablecoin. There are also crypto-collateralized stablecoins. These stablecoins are backed by cryptocurrencies. But they are also equal to $1, like fiat backed stablecoins. An example of such a stablecoin is DAI.
Previously, stablecoins merely balanced crypto-portfolios and helped in trading. With the growth of DeFi and tokenization they are essential in lending, borrowing, providing liquidity, and more.
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