Crypto 101 – Part 2

1.Crypto Collateral (on chain)-as the name suggests, the collateral is another coin and not USD. This is on the chain and fully backed by another crypto. Collateral is usually higher than underlying so that volatility can be taken care of. DAI, Augmint, Ampleforth are some examples. So, if you want to buy 1000 USD worth DAI using Ether coins, you might have to put 2000 USD worth of Ether to ensure
enough collateral accounting for volatility in Ether price.

2.Algorathmic StableCoins– These don’t use collateral but adjusts supply to keep price stable. So if price falls, they reduce supply and if price increases, the increased supply. Ampleforth, based, Empty Set Dollar, Dynamic set dollar are some examples.

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Commodity back Stablecoins-  Its clear from the name that commodities back these coins. The most common commodity being used is Gold. Tethergold and Paxosgold being the two most widely used commodity-backed Stablecoins. Primarily this is an easier way to hold the underlying without the need for physical possession. For example, holders of Paxos Gold (PAXG) StableCoins can sell them for cash or take possession of the underlying Gold. However, because London Good Delivery gold bars range from 370- to-430 per ounce, and each token represents 1 ounce, users must hold a minimum of 430 PAXG to execute token redemption. Once redeemed, token holders can take possession of their Gold at vaults throughout the UK. So, there are multiple use cases and options of tokens available as per the use case.

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