Stablecoin

The term stablecoin denotes a cryptocurrency the value of which is pegged to the value of an underlying asset. Stablecoins function as derivatives and may use fiat currencies, currency baskets, commodities or other assets as their underlying assets.

Because stablecoins replicate underlying assets, they require constant management. For this reason, stablecoins are typically proprietary. Instead of being based on supply and demand, the value of stablecoins is artificially fixed to the underlying asset.

The CryptoFranc (XCHF) is one example of a stablecoin. This cryptocurrency uses smart contracts on the Ethereum blockchain to represent underlying Swiss-franc-denominated bonds in order to replicate the performance of the Swiss franc. The proposed Libra cryptocurrency being developed by Facebook Inc. is a widely-publicized example of a stablecoin. Other examples include Tether and TrueUSD. The Petro – a stablecoin pegged to the value of Venezuelan petroleum – is backed by the Venezuelan government.

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