Stablecoins
Stable Unit Of Accounting
Overview
Stablecoins are tokens which are designed to maintain a fixed peg against a particular value reference. At present, the most popular stablecoins (USDT, USDC, DAI) are pegged to the USD due to its status as a global reserve currency but this is likely to change with increasingly global adoption of crypto (EURC, XSGD, IDRT).
Stablecoins are usually minted/burned based on a collateralisation ratio of a basket of assets. These assets determine the trust assumptions of the stablecoin and can range from fiat/assets being held in a tradFi account (USDC, USDT, PAXG) or crypto assets/tokens (DAI, TUSD, FRAX). Stablecoin protocols are able to set a target collateralisation ratios in order to drive capital efficiency.
As a stable unit of accounting, stablecoins facilitate liquidity flows due to the intuitive nature of the asset that it is pegged against. Put simply, stablecoin users have a stable point of reference against which they can value their trades or actions on the chain.
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