Stablecoins have been making the headlines in recent months, attracting big investors, tempted by the allure of a on ‘non-volatile’ cryptocurrency. At first, we usually pay attention to the backing connection, in other words, to the coin’s stabilizing mechanism. Broadly speaking, this is broken down into 3 categories: asset-backed (including fiat), crypto-backed, and non-backed stablecoins (including algorithms and the Seigniorage shares’ approach).
This is a great way of introducing the concept of stablecoins and a good basis for providing an overview, but it doesn’t paint a full picture in terms of how the composition of stablecoins can ultimately affect its utility and usability. To do this, we need to include 3 additional, but equally important, aspects into stablecoin discussions, i.e. pegging, collateralization, and redeemability.