Stablecoin Glossary
Algorithmic Stablecoin
A type of stablecoin that uses smart contracts and economic incentives to maintain its peg without direct collateral backing.
Arbitrage
The practice of buying and selling a stablecoin across different markets to take advantage of price differences, helping maintain its peg.
Backing
The assets or mechanisms that ensure a stablecoin maintains its value, such as fiat currency, crypto reserves, or algorithmic adjustments.
Burn Mechanism
A process in which stablecoins are permanently removed from circulation, often to reduce supply and stabilize price.
Centralized Stablecoin
A stablecoin issued and managed by a central entity, often backed by fiat reserves held in traditional banks.
Collateralization
The use of assets, such as fiat or crypto, to back the issuance of a stablecoin.
Crypto-Collateralized Stablecoin
A stablecoin backed by cryptocurrency reserves, usually over-collateralized to account for volatility.
Depegging
A situation where a stablecoin’s market price deviates significantly from its intended peg.
Decentralized Stablecoin
A stablecoin that operates without a central issuer and relies on smart contracts and decentralized governance.
DeFi (Decentralized Finance)
A blockchain-based financial ecosystem that offers permissionless (and sometimes trustless) financial services without reliance on traditional intermediaries.
Fiat-Backed Stablecoin
A stablecoin backed 1:1 by fiat currency reserves held in banks or equivalent financial instruments.
Floating Peg
A system where a stablecoin’s value is designed to fluctuate within a certain range rather than maintaining a fixed 1:1 peg.
Governance Token
A token that allows holders to participate in decision-making processes for a stablecoin protocol.
Hybrid Stablecoin
A stablecoin that combines multiple stabilization mechanisms, such as partial collateralization with algorithmic adjustments.
Lending Market Integrations
The incorporation of stablecoins or Real World Assets into Decentralized Finance lending protocols, enabling borrowing and lending with on-chain collateralization.
Liquidity Pool
A smart contract-based reserve of assets used to facilitate stablecoin trading and maintain price stability.
Market Maker
An entity or algorithm that provides liquidity by continuously buying and selling stablecoins to maintain price stability.
On/Off-Ramps
Services that allow users to convert between fiat currency and crypto assets (on-ramps) or vice versa (off-ramps), facilitating seamless entry and exit from blockchain ecosystems.
Over-Collateralization
A mechanism where stablecoins are backed by reserves worth more than the circulating supply to prevent depegging.
Peg
The target value that a stablecoin aims to maintain, typically tied to a fiat currency like the U.S. dollar.
Peg Stability Mechanism
A set of mechanisms, including arbitrage and collateralization, used to maintain a stablecoin’s value.
Real-World Asset (RWA)
A tangible or financial asset, such as real estate, bonds, or commodities, that is represented and traded on-chain via tokenization.
Reserve Transparency
The practice of providing publicly accessible proof of reserves to verify a stablecoin’s backing.
Seigniorage
The profit generated by the issuance of a stablecoin, particularly in algorithmic models that expand and contract supply.
Smart Contract
A self-executing contract with coded terms that govern the issuance and management of decentralized stablecoins.
Swap Pools
Liquidity pools on decentralized exchanges (DEXs) that facilitate the swapping of assets, including stablecoins.
Tokenization (of Stablecoins)
The process of converting real-world assets or stablecoin reserves into blockchain-based tokens, enabling fractional ownership, increased liquidity and programmable financial interactions.
TradFi (Traditional Finance)
The conventional financial system, including banks, investment firms and regulated financial institutions that operate under centralized oversight and established regulatory frameworks.
Volatility Buffer
A risk-management feature in stablecoin protocols that mitigates price swings by holding additional collateral.
Yield-Bearing Stablecoin
A stablecoin that generates passive income for holders by earning yield through mechanisms such as lending, staking, or protocol revenue sharing.
Yield Farming
A strategy where users provide liquidity or stake assets in DeFi protocols to earn rewards, often in the form of additional tokens or protocol fees.
Conclusion
This glossary serves as a foundational reference for understanding key stablecoin-related concepts. As the market evolves, new terms and mechanisms will continue to emerge.