How do the two types of stablecoin differ in terms of their underlying mechanisms?

1 answers

• Mar 15, 2022 · 3 years ago
  As a representative of BYDFi, I can tell you that the underlying mechanisms of the two types of stablecoins are quite different. Centralized stablecoins are typically issued by a centralized authority, such as a financial institution or a company. These stablecoins are backed by reserves held by the issuing entity, which can be traditional fiat currencies or other assets. The issuing entity is responsible for maintaining the stability of the stablecoin's value by managing the reserves and ensuring that they are sufficient to back the stablecoin's supply. On the other hand, decentralized stablecoins are built on blockchain technology and rely on smart contracts to maintain stability. These smart contracts automatically adjust the supply of the stablecoin based on market demand, ensuring that the stablecoin's value remains stable. Unlike centralized stablecoins, decentralized stablecoins do not rely on a centralized authority and instead leverage the power of decentralized technology to maintain stability.
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