<s>
A	O
stablecoin	B-Protocol
is	O
a	O
type	O
of	O
cryptocurrency	O
where	O
the	O
value	O
of	O
the	O
digital	O
asset	O
is	O
supposed	O
to	O
be	O
pegged	O
to	O
a	O
reference	O
asset	O
,	O
which	O
is	O
either	O
fiat	O
money	O
,	O
exchange-traded	O
commodities	O
(	O
such	O
as	O
precious	O
metals	O
or	O
industrial	O
metals	O
)	O
,	O
or	O
another	O
cryptocurrency	O
.	O
</s>
<s>
In	O
theory	O
,	O
1:1	O
backing	O
by	O
a	O
reference	O
asset	O
could	O
make	O
a	O
stablecoin	B-Protocol
value	O
track	O
the	O
value	O
of	O
the	O
peg	O
and	O
not	O
be	O
subject	O
to	O
the	O
radical	O
changes	O
in	O
value	O
that	O
are	O
common	O
in	O
the	O
market	O
for	O
many	O
digital	O
assets	O
.	O
</s>
<s>
In	O
practice	O
,	O
however	O
,	O
stablecoin	B-Protocol
issuers	O
have	O
not	O
been	O
proven	O
to	O
maintain	O
adequate	O
reserves	O
to	O
support	O
a	O
stable	O
value	O
.	O
</s>
<s>
Stablecoins	B-Protocol
have	O
a	O
number	O
of	O
purported	O
purposes	O
.	O
</s>
<s>
In	O
practice	O
,	O
many	O
stablecoins	B-Protocol
have	O
failed	O
to	O
retain	O
their	O
"	O
stable	O
"	O
value	O
.	O
</s>
<s>
Stablecoins	B-Protocol
are	O
typically	O
non-interest	O
bearing	O
,	O
and	O
therefore	O
do	O
not	O
provide	O
interest	O
returns	O
to	O
the	O
holder	O
.	O
</s>
<s>
Reserve-backed	O
stablecoins	B-Protocol
are	O
digital	O
assets	O
that	O
are	O
stabilized	O
by	O
other	O
assets	O
.	O
</s>
<s>
However	O
,	O
in	O
practice	O
,	O
few	O
if	O
any	O
stablecoins	B-Protocol
actually	O
meet	O
these	O
assumptions	O
.	O
</s>
<s>
Backed	O
stablecoins	B-Protocol
are	O
subject	O
to	O
the	O
same	O
volatility	O
and	O
risk	O
associated	O
with	O
the	O
backing	O
asset	O
.	O
</s>
<s>
If	O
the	O
backed	O
stablecoin	B-Protocol
is	O
backed	O
in	O
a	O
decentralized	O
manner	O
,	O
then	O
they	O
are	O
relatively	O
safe	O
from	O
predation	O
,	O
but	O
if	O
there	O
is	O
a	O
central	O
vault	O
,	O
they	O
may	O
be	O
robbed	O
,	O
or	O
suffer	O
loss	O
of	O
confidence	O
.	O
</s>
<s>
The	O
value	O
of	O
stablecoins	B-Protocol
of	O
this	O
type	O
is	O
based	O
on	O
the	O
value	O
of	O
the	O
backing	O
currency	O
,	O
which	O
is	O
held	O
by	O
a	O
third-party	O
–	O
regulated	O
financial	O
entity	O
.	O
</s>
<s>
In	O
this	O
setting	O
,	O
the	O
trust	O
in	O
the	O
custodian	O
of	O
the	O
backing	O
asset	O
is	O
crucial	O
for	O
the	O
stability	O
of	O
price	O
of	O
the	O
stablecoin	B-Protocol
.	O
</s>
<s>
Fiat-backed	O
stablecoins	B-Protocol
can	O
be	O
traded	O
on	O
exchanges	O
and	O
are	O
redeemable	O
from	O
the	O
issuer	O
.	O
</s>
<s>
The	O
cost	O
of	O
maintaining	O
the	O
stability	O
of	O
the	O
stablecoin	B-Protocol
is	O
equivalent	O
to	O
the	O
cost	O
of	O
maintaining	O
the	O
backing	O
reserve	O
and	O
the	O
cost	O
of	O
legal	O
compliance	O
,	O
maintaining	O
licenses	O
,	O
auditors	O
and	O
the	O
business	O
infrastructure	O
required	O
by	O
the	O
regulator	O
.	O
</s>
<s>
Cryptocurrencies	O
backed	O
by	O
fiat	O
currency	O
are	O
the	O
most	O
common	O
and	O
were	O
the	O
first	O
type	O
of	O
stablecoins	B-Protocol
on	O
the	O
market	O
.	O
</s>
<s>
The	O
value	O
connection	O
is	O
realized	O
off-chain	O
,	O
through	O
banks	O
or	O
other	O
types	O
of	O
regulated	O
financial	O
institutions	O
which	O
serve	O
as	O
depositaries	O
of	O
the	O
currency	O
used	O
to	O
back	O
the	O
stablecoin	B-Protocol
;	O
</s>
<s>
The	O
amount	O
of	O
the	O
currency	O
used	O
for	O
backing	O
of	O
the	O
stablecoin	B-Protocol
should	O
reflect	O
the	O
circulating	O
supply	O
of	O
the	O
stablecoin	B-Protocol
.	O
</s>
<s>
Examples	O
:	O
TrueUSD	O
(	O
TUSD	O
)	O
,	O
USD	B-Application
Tether	I-Application
(	O
USDT	O
)	O
,	O
USD	B-Protocol
Coin	I-Protocol
.	O
</s>
<s>
In	O
January	O
2023	O
,	O
National	O
Australia	O
Bank	O
(	O
not	O
Australia	O
's	O
central	O
bank	O
)	O
announced	O
that	O
it	O
would	O
create	O
by	O
mid-2023	O
an	O
Australian	O
Dollar	O
fiat-backed	O
stablecoin	B-Protocol
called	O
the	O
AUDN	O
,	O
for	O
streamlining	O
cross-border	O
banking	O
transactions	O
and	O
trading	O
carbon	O
credits	O
.	O
</s>
<s>
The	O
main	O
characteristics	O
of	O
commodity-backed	O
stablecoins	B-Protocol
are	O
:	O
</s>
<s>
The	O
amount	O
of	O
commodity	O
used	O
to	O
back	O
the	O
stablecoin	B-Protocol
should	O
reflect	O
the	O
circulating	O
supply	O
of	O
the	O
stablecoin	B-Protocol
.	O
</s>
<s>
Holders	O
of	O
commodity-backed	O
stablecoins	B-Protocol
can	O
redeem	O
their	O
stablecoins	B-Protocol
at	O
the	O
conversion	O
rate	O
to	O
take	O
possession	O
of	O
the	O
backing	O
assets	O
,	O
under	O
whatever	O
rules	O
as	O
to	O
timing	O
and	O
amount	O
are	O
in	O
place	O
at	O
the	O
time	O
of	O
redemption	O
.	O
</s>
<s>
The	O
cost	O
of	O
maintaining	O
the	O
stability	O
of	O
the	O
stablecoin	B-Protocol
is	O
the	O
cost	O
of	O
storing	O
and	O
protecting	O
the	O
commodity	O
backing	O
.	O
</s>
<s>
Cryptocurrency-backed	O
stablecoins	B-Protocol
are	O
issued	O
with	O
cryptocurrencies	O
as	O
collateral	O
,	O
which	O
is	O
conceptually	O
similar	O
to	O
fiat-backed	O
stablecoins	B-Protocol
.	O
</s>
<s>
However	O
,	O
the	O
significant	O
difference	O
between	O
the	O
two	O
designs	O
is	O
that	O
while	O
fiat	O
collateralization	O
typically	O
happens	O
off	O
the	O
blockchain	B-Application
,	O
the	O
cryptocurrency	O
or	O
crypto	O
asset	O
used	O
to	O
back	O
this	O
type	O
of	O
stablecoins	B-Protocol
is	O
done	O
on	O
the	O
blockchain	B-Application
,	O
using	O
smart	B-Application
contracts	I-Application
in	O
a	O
more	O
decentralized	O
fashion	O
.	O
</s>
<s>
In	O
many	O
cases	O
,	O
these	O
work	O
by	O
allowing	O
users	O
to	O
take	O
out	O
a	O
loan	O
against	O
a	O
smart	B-Application
contract	I-Application
via	O
locking	O
up	O
collateral	O
,	O
making	O
it	O
more	O
worthwhile	O
to	O
pay	O
off	O
their	O
debt	O
should	O
the	O
stablecoin	B-Protocol
ever	O
decrease	O
in	O
value	O
.	O
</s>
<s>
To	O
prevent	O
sudden	O
crashes	O
,	O
a	O
user	O
who	O
takes	O
out	O
a	O
loan	O
may	O
be	O
liquidated	O
by	O
the	O
smart	B-Application
contract	I-Application
should	O
their	O
collateral	O
decrease	O
too	O
close	O
to	O
the	O
value	O
of	O
their	O
withdrawal	O
.	O
</s>
<s>
Significant	O
features	O
of	O
crypto-backed	O
stablecoins	B-Protocol
are	O
:	O
</s>
<s>
The	O
value	O
of	O
the	O
stablecoin	B-Protocol
is	O
collateralized	O
by	O
another	O
cryptocurrency	O
or	O
a	O
cryptocurrency	O
portfolio	O
;	O
</s>
<s>
The	O
peg	O
is	O
executed	O
on-chain	O
via	O
smart	B-Application
contracts	I-Application
;	O
</s>
<s>
The	O
supply	O
of	O
the	O
stablecoins	B-Protocol
is	O
regulated	O
on-chain	O
,	O
using	O
smart	B-Application
contracts	I-Application
;	O
</s>
<s>
The	O
technical	O
implementation	O
of	O
this	O
type	O
of	O
stablecoins	B-Protocol
is	O
more	O
complex	O
and	O
varied	O
than	O
that	O
of	O
the	O
fiat-collateralized	O
kind	O
which	O
introduces	O
a	O
greater	O
risks	O
of	O
exploits	O
due	O
to	O
bugs	O
in	O
the	O
smart	B-Application
contract	I-Application
code	O
.	O
</s>
<s>
With	O
the	O
tethering	O
done	O
on-chain	O
,	O
it	O
is	O
not	O
subject	O
to	O
third-party	O
regulation	O
creating	O
a	O
decentralized	O
solution	O
.	O
</s>
<s>
The	O
potentially	O
problematic	O
aspect	O
of	O
this	O
type	O
of	O
stablecoins	B-Protocol
is	O
the	O
change	O
in	O
value	O
of	O
the	O
collateral	O
and	O
the	O
reliance	O
on	O
supplementary	O
instruments	O
.	O
</s>
<s>
The	O
complexity	O
and	O
non-direct	O
backing	O
of	O
the	O
stablecoin	B-Protocol
may	O
deter	O
usage	O
,	O
as	O
it	O
may	O
be	O
difficult	O
to	O
comprehend	O
how	O
the	O
price	O
is	O
actually	O
ensured	O
.	O
</s>
<s>
Live	O
stablecoins	B-Protocol
projects	O
of	O
this	O
type	O
are	O
Havven	O
(	O
the	O
pair	O
:	O
nUSD	O
stablecoin	B-Protocol
and	O
HAV	O
the	O
collateral-backed	O
nUSD	O
)	O
,	O
DAI	O
(	O
pair	O
:	O
CDP	O
Collateralized	O
Debt	O
Position	O
and	O
MKR	O
governance	O
token	O
used	O
to	O
control	O
the	O
supply	O
)	O
and	O
others	O
.	O
</s>
<s>
Seigniorage-style	O
coins	O
,	O
also	O
known	O
as	O
algorithmic	O
stablecoins	B-Protocol
,	O
utilize	O
algorithms	O
to	O
control	O
the	O
stablecoin	B-Protocol
's	O
money	O
supply	O
,	O
similar	O
to	O
a	O
central	O
bank	O
's	O
approach	O
to	O
printing	O
and	O
destroying	O
currency	O
.	O
</s>
<s>
Seigniorage-based	O
stablecoins	B-Protocol
are	O
a	O
less	O
popular	O
form	O
of	O
stablecoin	B-Protocol
.	O
</s>
<s>
Algorithmic	O
stablecoins	B-Protocol
are	O
a	O
type	O
of	O
stablecoin	B-Protocol
intended	O
to	O
hold	O
a	O
stable	O
value	O
over	O
the	O
long	O
term	O
because	O
of	O
particular	O
computer	O
algorithms	O
and	O
game	O
theory	O
rather	O
than	O
a	O
peg	O
to	O
a	O
reserve	O
asset	O
.	O
</s>
<s>
In	O
practice	O
,	O
some	O
algorithmic	O
stablecoins	B-Protocol
have	O
not	O
maintained	O
price	O
stability	O
.	O
</s>
<s>
For	O
example	O
,	O
the	O
"	O
UST	O
"	O
asset	O
on	O
the	O
Terra	B-Application
blockchain	I-Application
was	O
theoretically	O
supported	O
by	O
a	O
reserve	O
asset	O
called	O
"	O
Luna	B-Application
"	O
,	O
plummeted	O
in	O
value	O
in	O
May	O
2022	O
.	O
</s>
<s>
Significant	O
features	O
of	O
seigniorage-style	O
stablecoins	B-Protocol
are	O
:	O
</s>
<s>
Adjustments	O
are	O
made	O
on-chain	O
,	O
</s>
<s>
TerraUSD	B-Application
(	O
UST	O
)	O
,	O
created	O
by	O
Do	O
Kwon	O
,	O
was	O
meant	O
to	O
maintain	O
a	O
1:1	O
peg	O
with	O
the	O
United	O
States	O
dollar	O
.	O
</s>
<s>
Instead	O
of	O
being	O
backed	O
by	O
dollars	O
,	O
UST	O
was	O
designed	O
to	O
keep	O
its	O
peg	O
through	O
a	O
complex	O
system	O
connected	O
with	O
another	O
Terra	B-Application
network	O
token	O
,	O
Terra	B-Application
(	O
LUNA	B-Application
)	O
.	O
</s>
<s>
In	O
May	O
2022	O
UST	O
broke	O
its	O
peg	O
with	O
its	O
price	O
plunging	O
to	O
10	O
cents	O
,	O
while	O
LUNA	B-Application
fell	O
to	O
"	O
virtually	O
zero	O
"	O
,	O
down	O
from	O
an	O
all-time	O
high	O
of	O
$119.51	O
.	O
</s>
<s>
On	O
13	O
June	O
2022	O
,	O
Tron	B-Protocol
's	I-Protocol
algorithmic	O
stablecoin	B-Protocol
,	O
USDD	O
,	O
lost	O
its	O
peg	O
to	O
the	O
US	O
Dollar	O
.	O
</s>
<s>
Nellie	O
Liang	O
,	O
Under	O
Secretary	O
of	O
the	O
Treasury	O
for	O
Domestic	O
Finance	O
reported	O
to	O
the	O
Senate	O
banking	O
committee	O
that	O
the	O
rapid	O
growth	O
of	O
the	O
stablecoin	B-Protocol
market	O
capitalization	O
and	O
its	O
potential	O
for	O
financial	O
services	O
innovation	O
require	O
urgent	O
congressional	O
regulation	O
.	O
</s>
<s>
Tether	B-Application
is	O
currently	O
the	O
world	O
's	O
largest	O
market	O
capitalization	O
stablecoin	B-Protocol
.	O
</s>
<s>
It	O
has	O
been	O
accused	O
of	O
failing	O
to	O
produce	O
audits	O
for	O
reserves	O
used	O
to	O
collateralize	O
the	O
quantity	O
of	O
minted	O
USDT	O
stablecoin	B-Protocol
.	O
</s>
<s>
Tether	B-Application
has	O
since	O
issued	O
assurance	O
reports	O
on	O
USDT	O
backing	O
,	O
although	O
some	O
speculation	O
persists	O
.	O
</s>
<s>
Many	O
projects	O
can	O
advance	O
a	O
product	O
and	O
call	O
it	O
a	O
stablecoin	B-Protocol
.	O
</s>
<s>
Thus	O
,	O
despite	O
the	O
name	O
,	O
many	O
stablecoins	B-Protocol
have	O
historically	O
lacked	O
stability	O
because	O
the	O
digital	O
assets	O
can	O
be	O
built	O
to	O
many	O
different	O
standards	O
.	O
</s>
<s>
Stablecoins	B-Protocol
such	O
as	O
TerraUSD	B-Application
,	O
USDD	O
,	O
DEI	O
and	O
others	O
crashed	O
to	O
zero	O
in	O
2022	O
alone	O
.	O
</s>
<s>
Following	O
that	O
,	O
research	O
indicated	O
little	O
to	O
no	O
evidence	O
that	O
Tether	B-Application
USD	O
minting	O
events	O
influenced	O
Bitcoin	O
values	O
unless	O
they	O
were	O
publicized	O
to	O
the	O
public	O
by	O
Whale	O
Alert	O
.	O
</s>
<s>
The	O
stablecoin	B-Protocol
project	O
Basis	O
,	O
which	O
had	O
received	O
over	O
$100	O
million	O
in	O
venture	O
capital	O
funding	O
,	O
shut	O
down	O
in	O
December	O
2018	O
,	O
citing	O
concerns	O
about	O
US	O
regulation	O
.	O
</s>
<s>
Diem	B-Protocol
(	O
formerly	O
Libra	B-Protocol
)	O
was	O
abandoned	O
by	O
Facebook/Meta	O
and	O
later	O
purchased	O
by	O
Silvergate	O
Capital	O
.	O
</s>
