Blog Layout

Cryptocurrency Glossary: Stablecoins

Aug 12, 2022

Find all the Stablecoin terms you'll come across in our glossary below



Today, we’re talking about one of the most important and controversial parts of the cryptocurrency industry: Stablecoins, the privately issued currencies that could change the way people pay for goods and services in ways that have central bankers and regulators afraid that they’ll lose control of their economies.



Algorithmic stablecoin: Also called non-collateralised stablecoins, these tokens maintain their dollar peg by means other than a one-to-one backing reserve of fiat currency or Treasuries. These include smart-contract-controlled arbitrage incentives with a partner coin and over-collateralised reserves of other digital assets (i.e. bitcoin). This backing is far less secure than a fiat reserve — and more susceptible to runs, as the weeklong, $48 billion collapse of the TerraUSD stablecoin in May 2022 demonstrated.


Block Explorer: An online tool for exploring the blockchain of a Stablecoin, where you can watch and follow, live, all the transactions happening on the blockchain. Block explorers can serve as blockchain analysis and provide information such as total network hash rate, coin supply, transaction growth, etc.


Blockchain: The blockchain is a digital ledger of all the transactions ever made in a particular cryptocurrency. It’s comprised of individual blocks (see definition above) that are chained to each other through a cryptographic signature. Each time a block’s capacity is reached, a new block is added to the chain. The blockchain is repeatedly copied and saved onto thousands of computers all around the world, and it must always match each copy. As there is no master copy stored in one location, it’s considered decentralised.


Breaking the buck: When a loss of confidence causes the value of a dollar-pegged stablecoin to drop below one dollar. This will frequently lead to a panic and run.


Collateralised (or reserve-backed) stablecoin: A collateralised stablecoin is backed one-to-one by a reserve of fiat currency and other highly liquid investments. While there was not a lot of clarity about the latter, in the U.S. it’s being defined as short-term Treasuries and will likely be codified that way by 2023. A previously popular backing investment, short-term corporate paper is being phased out as not liquid or secure enough.


Collateralised (or reserve-backed) stablecoins are arguably the fastest growing sector within the cryptocurrency market, with the top three having tripled from $50 billion to over $150 billion in just 12 months.


An example of this fast growing category of Stablecoins is e-Money.com suite of European Stablecoins (EEUR, ECHF, ENOK, EDKK, and ESEK) who have positioned themselves to become a significant player in the European Stablecoin Payments, DeFi and NFT markets.


Commercial paper: Short-term corporate debt that was used by a number of top stablecoins — until they revealed the make-up of their reserves. Commercial paper is on the way out.


Digital asset: A digital asset in crypto is any cryptocurrency, token, stablecoins or even NFTs. More broadly, it’s anything of digital that has value and established ownership


FDIC: The Federal Deposit Insurance Corp. may play a big role in collateralised stablecoins, as the Biden administration is pushing to require that all stablecoin issuers be federally insured banks backed by the FDIC.


Fiat currency: Government-issued currency backed by the issuing government’s physical assets but by that government. The dollar’s backing is the “full faith and credit” of the United States.


Free Banking: Generally, an arrangement in which banks can issue their own currency. In the U.S., the Free Banking Era refers to the time from 1837 to 1863 in which there was no national central bank and weren’t any federally chartered banks. State-chartered banks issued banknotes against silver and gold, but their value varied widely from their face value depending on the reputation of the issuing bank — which failed with alarming regularity. It is widely referred to by stablecoin opponents.


Legal tender: Anything that by law can be used to settle a public or private debt. Generally the national currency, but El Salvador, for example, recognises the U.S. dollar and bitcoin as legal tender that merchants and other organisations are required to accept.


Libra/Diem: Libra was a global stablecoin project launched by Meta (then Facebook) in 2019. It was to be backed by a basket of fiat currencies and would be usable by anyone, but most notably by Facebook’s 2.3 billion customers around the world. That terrified and enraged central bankers, government regulators and elected officials, who feared it would allow people to bypass national currencies and weaken their ability to control economies during financial crises. It and the other companies that supported it came under immediate attack and many were scared off.


Eventually, the project was scaled back and rebranded Diem. These would be a series of stablecoins backed by and pegged to individual national currencies. That failed as well and the project was abandoned altogether in January 2022.


But it brought stablecoins — and to an extent cryptocurrencies in general — which had until then been mostly a crypto-industry phenomenon, a much higher public profile, with presidents and prime ministers chiming in. It also led to the movement to create central bank digital currencies as a way to fight off stablecoin’s influence.


Minted: When you give a stablecoin issuer a fiat dollar (or other currency) a new stablecoin is minted — created — and can be used like any other. When redeemed for fiat, a coin is burned — destroyed.


Payments stablecoin: The nomenclature for a reserve-backed stablecoin making into several pieces of proposed legislation to regulate stablecoins.


Peg: A peg is a fixed exchange rate between two currencies. So one stablecoin should always equal one dollar exactly.


Redemption rights: Stablecoin owners are — or at least should be — able to redeem one token for one unit of the fiat backing it from the issuer. This will likely be codified into law that requires issuers to do so. Users’ confidence in their ability to redeem on demand is what ensures stablecoins maintain their peg (see above).


Reserve: The account or accounts holding the assets backing a collateralised stablecoin.


Reserve assets: The dollars, treasuries, and anything else backing the peg of a collateralised stablecoin.


Run: When stablecoin owners lose confidence that they will be able to redeem fiat from the issuer on demand, a panic can ensue that works much like a bank run, except that the digital nature of stablecoins means it can happen faster and is harder to control.


Real-time payments: Instantly settled payments. Stablecoins have been presented as a way of providing real-time payments.


Systemic risk: The possibility that the failure of a stablecoin (or other cryptocurrency) could have effects that would cause a contagion crossing over into the traditional economy.


TerraUSD: An algorithmic stablecoin that failed following a weeklong run in May 2022. About $48 billion was lost by investors, igniting a sense of urgency to the push to regulate stablecoins even before other cryptocurrencies.


Tether: The issuer of the largest and oldest stablecoin, USDT. The company’s opacity regarding its backing reserves has led to several large settlements with regulators, as well as speculation about the size and existence of its reserves.


Wallet: A digital wallet is a software app capable of storing, sending and receiving digital assets, including cryptocurrencies and stablecoins. They come in two varieties: continuously online hot wallets that are more convenient but less secure, and offline cold wallets, which must be collected the internet to be used but are otherwise inaccessible by hackers.








Disclaimer:


GlobalStablecoins.com is an informational website that provides news about coins, blockchain companies, blockchain products and blockchain events. Don’t take it as investment advice. Speak to an advisor before you risk investing in an ICO, Cryptocurrencies, Cryptoassets, Security Tokens, Utility Tokens, Exchange Tokens, Global Stablecoins, Stablecoins or eMoney Tokens. GlobalStablecoins.com is not accountable, directly or indirectly, for any damage or loss incurred, alleged or otherwise, in connection to the use or reliance of any content you read on the site.


Affiliate Disclosure / Sponsored Posts:


If a Sponsored Post contains any mention of a crypto project, we encourage our readers to conduct diligence prior to taking further action. GlobalStablecoins.com does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.


GlobalStablecoins.com may receive compensation for affiliate links. Should you perform activities in relation to an affiliate link, it is understood that some form of compensation might be made to GlobalStablecoins.com. For example, if you click on an affiliate link, and sign up and trade on an exchange, GlobalStablecoins.com may receive compensation. 


Before you invest in Cryptoassets you should be aware of the following,


Cryptoassets are considered very high risk, speculative investments.


If you invest in Cryptoassets you should be prepared to lose all your money.


All Sponsored Posts are paid for by crypto projects, coin foundations, advertising firms, PR firms, or other marketing agencies. GlobalStablecoins.com is not a subsidiary of any marketing agency, nor are we owned by any crypto or blockchain foundation.


The purpose of offering Sponsored Posts to our advertisers is to help fund the day-to-day business operations at GlobalStablecoins.com. 


If you come across a Sponsored Post which you believe is fraudulent and/or “scammy,” please contact us and we will perform an immediate investigation.


BIS Global Stablecoins
07 Mar, 2024
In response to the increasing prominence of global stablecoins (GSCs) and their potential implications for financial stability, the Bank for International Settlements (BIS) has introduced a comprehensive set of recommendations aimed at regulating and supervising these widely adopted digital assets.
Congress Emblem
29 Jul, 2023
In a noteworthy development within the U.S. Congress, a long-awaited stablecoin bill made significant progress as it graduated from the House Financial Services Committee. However, the advancement of the Republican-backed bill was marred by a partisan clash and objections from the White House, leaving the committee chair, Patrick McHenry (R-N.C.), lamenting the missed opportunity for a bipartisan deal.
US Congress Stablecoins Bill
13 Jul, 2023
A new crypto oversight bill reintroduced by Senators Cynthia Lummis and Kirsten Gillibrand is making waves in the U.S. Senate. The bill proposes that crypto exchanges be overseen by the Commodity Futures Trading Commission (CFTC) rather than the U.S. Securities and Exchange Commission (SEC). Additionally, it calls for all stablecoin issuers to be regulated depository institutions. This bill represents a significant effort to establish U.S. regulation for the crypto industry and addresses the division of oversight between the SEC and CFTC.
Financial Stability Board Global Stablecoins GSC
13 Jul, 2023
In preparation for the upcoming G20 Finance Ministers and Central Bank Governors meeting in India, Klaas Knot, Chair of the Financial Stability Board (FSB), has highlighted the recent banking turmoil and the FSB's commitment to learning valuable lessons from these events. In a letter addressed to the G20 officials, Knot emphasized the importance of addressing risks associated with crypto-assets and global stablecoin arrangements, as well as providing updates on efforts to tackle climate-related financial risks.
European Banking Authority Stablecoins E-money Tokens
12 Jul, 2023
E-Money Token (Stablecoin) issuers have been advised to proactively prepare for the forthcoming regulations set by the European Union, according to the European Banking Authority (EBA). Although the rules of the Markets in Crypto Assets (MiCA) framework will officially come into effect in June 2024, the EBA emphasised the importance of early preparation to protect consumers and avoid disruptions for companies. The MiCA regulation includes provisions on governance, reserve requirements, and licensing for crypto wallet providers and exchanges.
12 Jul, 2023
According to a recent study by Juniper Research, the value of payment transactions made with stablecoins is predicted to surpass $187 billion by 2028, a significant increase from $53 billion in 2023. The study, titled "CBDCS & STABLECOINS: KEY OPPORTUNITIES, REGIONAL ANALYSIS & MARKET FORECASTS 2023-2030," highlights the rapid progress of stablecoins in the cross-border market, where they offer an alternative to slow, expensive, and difficult-to-track existing payment systems.
RBI CBDC
12 Jul, 2023
Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar expressed India's concerns about stablecoins, emphasising their potential threat to policy sovereignty. In a speech at a banking event, Sankar called for a global financial system based on central bank digital currencies (CBDCs) issued by each country for settling global payments. He highlighted the importance of CBDCs in maintaining financial stability and independence, stating, "We should ideally aim for a global financial system which rests on central bank digital currencies (CBDCs) issued by each country to settle global payments, and not rely on stablecoins."
Bank of England Stablecoins
11 Jul, 2023
In a speech delivered on July 10, Bank of England (BOE) Governor Andrew Bailey shared his perspective on digital currencies, highlighting the potential of "enhanced digital money" while expressing reservations about cryptocurrencies and stablecoins. Bailey emphasised the need for regulatory oversight, stability, and usability in the evolving financial landscape.
06 Jul, 2023
In a move that could reshape the global stablecoin market, Hong Kong is considering the launch of its own stablecoin, HKDG, to rival established stablecoins such as USDT and USDC. This groundbreaking proposal, co-authored by prominent figures in academia and industry, including Vice Chancellor Wang Yang and angel investor Cai Wensheng, aims to enhance Hong Kong's position in the digital currency landscape and assert its leadership in the blockchain sector.
The Parliamentary Standing Committee on Industry and Technology (INDU) Stablecoins
30 Jun, 2023
Canadian lawmakers have published a groundbreaking report that defends and supports the crypto industry, calling for the recognition of blockchain as a growing sector with the potential to drive job creation and economic growth. The report, which includes 16 recommendations, has garnered praise from industry participants, including leading cryptocurrency exchange Coinbase.
More Posts
Share by: