The US dollar, euro, or Japanese Yen serve as the collateral for these stablecoins. The stablecoin's issuer retains an equivalent amount of fiat money in a bank account or another safe asset to maintain the stablecoin's worth.
Other cryptocurrencies, such as Bitcoin or Ethereum, back these stablecoins. For the purpose of maintaining the stablecoin's value, the stablecoin's issuer keeps a comparable amount of cryptocurrency in development on a smart contract or other secure platform.
Some stablecoins have a specific commodity, like gold or oil, as their backing.The issuer of the stablecoin holds the equivalent amount of the commodity in a safe storage facility or another secure platform to maintain the value of the stablecoin.
In order to maintain a stable value, these stablecoins utilize algorithms and smart contracts. The algorithm regulates the stablecoin's supply depending on demand to maintain a steady price over time.
To create a stablecoin that is more diverse and complex, these stablecoins combine two or more types. By combining commodities and algorithms, a hybrid stablecoin may be backed by a combination of fiat and cryptocurrency.
Stablecoins are a relatively new and evolving area of the cryptocurrency industry, and new stablecoins may emerge as the market develops.