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Quantitative Finance · Glossary

What is Stablecoin, depeg?

Also known as: stablecoin · depeg

Definition 14.11 Markets III: Commodities, Energy and Crypto · Chapter 14 — Blockchains for Traders

A stablecoin is a token designed to hold a fixed value against a currency, usually the dollar, most often by an issuer that holds reserves (cash, bills, repo) and mints tokens against deposits and burns them against redemptions. A depeg is a period in which the token trades away from its target value in the secondary market.

How a reserve-backed stablecoin holds its peg: institutions with primary access mint and redeem at one for one and trade the difference against the secondary market. If redemption stops or the reserves are doubted, nothing holds the peg. Schematic.
Figure 14.4. How a reserve-backed stablecoin holds its peg: institutions with primary access mint and redeem at one for one and trade the difference against the secondary market. If redemption stops or the reserves are doubted, nothing holds the peg. Schematic.
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