2 types of stablecoins:
Custodial stablecoins rely on trusted institutions to hold reserve assets off-chain (e.g., $1 per coin). This introduces counterparty risk that cryptocurrencies otherwise solve.
Non-custodial (or decentralized) stablecoins create on-chain risk transfer markets via complex systems of algorithmic financial contracts backed by volatile cryptoassets.
different typpes of collateralization:
- fiat collateralized
- crypto collateralized
- yield bearing
fiat collateralized is simple: 1:1 simple IOU ratio between digital asset supply and the amount of fiat held by the issuer
fiat collateralized stablecoins like usdt and usdc are the most dominant in the market - especially CEXs primarily bcoz of high liquidity and performance relative to other approaches
—https://arxiv.org/pdf/1906.02152-
resources:
https://berkeley-defi.github.io/assets/material/Stablecoins%202.0%20.pdf