Stable coins are digital currencies that maintain stable value by anchoring specific assets. They are mainly divided into three categories: fiat currency collateral, crypto asset collateral and algorithmic. Among them, fiat currency collateral such as USDT and USDC are widely used, and their reserves are often invested in US Treasury bonds, forming a close connection with the traditional financial system.

What is a stablecoin?

Stablecoin is a special type of digital currency whose value is linked to a relatively stable asset. The most common situation is anchoring 1:1 with fiat currencies (such as USD), which means that a unit of stablecoins can theoretically be exchanged for one dollar. Its main purpose is to combine the stability of traditional finance and the efficiency of digital technology to solve the problem of violent fluctuations in the prices of other crypto assets, so that they can be better applied to daily payments, transaction settlements and store of value.

Main trading platforms for stablecoins

• Binance Binance: ()
• Ouyi OKX: ()
• Huobi: ()
• Gate.io Sesame Opening: ( )

The main types of stablecoins

According to the support mechanism behind it, stablecoins can be mainly divided into the following three categories:

• Fiat currency collateralized stablecoin

  This is the most mainstream and easy to understand. Such stablecoins are supported by the real world fiat currency reserves. For every unit of stablecoin issued by the issuer, he deposits fiat currency of equivalent value (such as USD, Euro) in his reserve account. Users can redeem fiat currency at a fixed ratio at any time with stable coins. This mode has higher transparency and strongest stability. Representative items: USDT (Tether), USDC (USD Coin).

• Crypto Asset Pledge Stable Coins

  These stablecoins use other crypto assets such as Ethereum as collateral. To cope with the risk of price fluctuations in the collateral itself, the system usually requires over-collateral. For example, users need to pledge a crypto asset worth $200 to generate a stablecoin worth $100. This mechanism is more decentralized and does not rely on traditional financial institutions. Representative project: DAI.

• Algorithm stablecoin

  This is a stablecoin that does not rely on any collateral. It automatically regulates the supply in the market through algorithms in smart contracts, thus maintaining its price stability. When the price is higher than the anchor value, the system will issue additional issuance to lower the price; when the price is lower than the anchor value, it will be repurchased or destroyed to increase the price. This model is very exquisitely designed, but it also faces huge risks and challenges. There have been cases of collapse caused by mechanism failure in history.

The relationship between stablecoins and US Treasury bonds

Stablecoins, especially the largest fiat-collateralized stablecoin , have a profound and important connection with U.S. Treasury bonds.

This connection is mainly reflected in the composition of reserve assets. Stablecoin issuers like USDT and USDC need to manage tens of billions or even hundreds of billions of dollars in reserves to ensure that the stablecoins they issue are fully supported by value. To ensure the security and liquidity of these reserves, the issuer cannot simply deposit all cash in a normal current account, but will invest it in assets with extremely low risk and easy to cash.

US Treasury Securities has become the preferred investment target for these issuers because it is recognized by the world as one of the safest financial assets. Stablecoin issuers use the vast majority of their reserves to purchase short-term US Treasury bonds, Treasury bonds, etc. Doing so can not only ensure the security of the assets, but also obtain certain interest income.

Therefore, the issuers of large stablecoins have actually become big buyers of US Treasury bonds. Their purchasing behavior affects the demand in the US Treasury market to a certain extent. This also means that the stability of the stablecoin world has formed a close symbiotic relationship with the core of the traditional financial system, the United States' sovereign debt. The transparency and composition of stablecoin reserve assets have therefore become the focus of attention of regulators and market participants.

Summarize

In short, stablecoins are the bridge connecting the digital world with traditional finance, anchoring value through different mechanisms. Among them, fiat currency collateralized stablecoins are the mainstream of the current market. In order to ensure the stability of their own value, they invest huge reserves in high-credit assets such as U.S. Treasury bonds, thus creating an inseparable connection with the global core financial system. For anyone who is concerned about the digital asset field, understanding the working principle of stablecoins and the reserve asset structure behind them is the key to assessing their reliability and future development trends.

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