Crypto assets like ETH and BTC have been challenging to use for payments, lending, and a variety of other financial applications in large part because of their price instability. Take lending as an example. Making a loan in ETH carries an additional risk: besides the fact that the loan may not be repaid, the price of ETH could change as the loan becomes due. Stability unlocks many use cases.

To solve this, there exists a rapidly growing category of crypto assets called stablecoins where the price is fixed, or pegged, usually relative to the US dollar. These assets inherit many of the benefits of crypto when they’re tokenized on a blockchain computer. They’re native to the internet, easily transferable, global, and fully programmable.

There are many ways to make stablecoins, broadly separable across three dimensions: centralized vs. decentralized, collateralized vs. uncollateralized, and pegged vs. unpegged.

Centralized stablecoins are issued onto blockchains by a single source, like TrustToken’s TUSD or Centre’s USDC, which are also fully collateralized, and pegged to the US dollar. It’s fair to think of these as digital IOUs for the underlying dollars. This kind of US dollar-pegged, centralized stablecoin is the most common form today, making up over 95% of the $125b+ supply.

Although technically simple, this method doesn’t use crypto to its full potential, and creates centralized points of vulnerability. In order to realize crypto’s promise of broad financial inclusion, we should explore the range of possibilities across all three dimensions. And, access to these assets should not rely completely on centralized entities.

Many users would likely prefer stablecoins that have different properties than are offered commonly today. For example, a stablecoin pegged to the local currency may be useful if debts are denominated in that currency. A stablecoin that tracks a basket of goods could serve as a hedge against inflation. Another stablecoin without a peg at all might be helpfully uncorrelated with global monetary policy trends.

Crypto assets like ETH and BTC have been challenging to use for payments, lending, and a variety of other financial applications in large part because of their price instability. Take lending as an example. Making a loan in ETH carries an additional risk: besides the fact that the loan may not be repaid, the price of ETH could change as the loan becomes due. Stability unlocks many use cases.

To solve this, there exists a rapidly growing category of crypto assets called stablecoins where the price is fixed, or pegged, usually relative to the US dollar. These assets inherit many of the benefits of crypto when they’re tokenized on a blockchain computer. They’re native to the internet, easily transferable, global, and fully programmable.

There are many ways to make stablecoins, broadly separable across three dimensions: centralized vs. decentralized, collateralized vs. uncollateralized, and pegged vs. unpegged.

Centralized stablecoins are issued onto blockchains by a single source, like TrustToken’s TUSD or Centre’s USDC, which are also fully collateralized, and pegged to the US dollar. It’s fair to think of these as digital IOUs for the underlying dollars. This kind of US dollar-pegged, centralized stablecoin is the most common form today, making up over 95% of the $125b+ supply.

Although technically simple, this method doesn’t use crypto to its full potential, and creates centralized points of vulnerability. In order to realize crypto’s promise of broad financial inclusion, we should explore the range of possibilities across all three dimensions. And, access to these assets should not rely completely on centralized entities.

Many users would likely prefer stablecoins that have different properties than are offered commonly today. For example, a stablecoin pegged to the local currency may be useful if debts are denominated in that currency. A stablecoin that tracks a basket of goods could serve as a hedge against inflation. Another stablecoin without a peg at all might be helpfully uncorrelated with global monetary policy trends.