WEBVTT

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A stablecoin is a
class of cryptocurrency

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that attempts to
offer price stability

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and is backed by
a reserve asset.

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Bitcoin is the most
popular cryptocurrency,

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but it often has
big swings in value.

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This volatility can make bitcoin
unsuitable for everyday use.

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Ideally, a cryptocoin should
maintain its purchasing power

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and have the lowest
possible inflation.

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This drives consumer spending
instead of encouraging consumer

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saving.

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Stablecoins have gained traction
as a solution for this need.

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They offer the speed and
privacy of cryptocurrencies,

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along with the stability
of government-issued fiat

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currencies.

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There are three categories
of stablecoins, all based

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on their working mechanisms.

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Fiat-collateralized stablecoins
maintain a fiat currency

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reserve as collateral
to issue cryptocoins.

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This collateral can be
precious metals like gold

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and commodities like oil.

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But most fiat-collateralized
stablecoins

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use dollar reserves.

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Crypto-collateralized
stablecoins

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are backed by other
cryptocurrencies.

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Because these reserve
cryptocurrencies

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may be prone to high
volatility, these stablecoins

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are over-collateralized.

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That means they maintain a
larger cryptocurrency reserve

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for issuing a smaller
number of stablecoins.

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Non-collateralized stablecoins
don't have a reserve.

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Instead, like a
central bank, they

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use a working mechanism
to maintain stability.

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For example, the
dollar-pegged Basecoin

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uses a consensus
mechanism to control

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the supply of tokens as needed.

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Stablecoins could have a
potentially massive impact

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on the broader financial system.

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Because of this,
politicians have

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called for greater oversight,
and stablecoins have come

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under scrutiny from regulators.

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