xtlcd:What are Stablecoins and CBDCs?

 

Stablecoins are virtual digital assets whose value is pegged to a real-world fiat currency like the US dollar. Operators of stablecoins usually maintain a reserve of fiat currency equal to the token's circulating supply.
If more stablecoins are minted, an equal amount of fiat must be added to the reserve and vice versa. This is how stablecoins maintain their valuation with the currency they track. Some stablecoins can also be algorithmic, where assets back only a part of their circulation and the other is regulated by an algorithm that creates or destroys coins to keep the peg intact.
Also Read: Crypto markets nosedive after US inflation data but could it be a good time to buy the dip
On the other hand, Central Bank Digital Currencies (CBDCs) are cryptos backed by a country's central bank, like the RBI in India. Instead of being pegged to a fiat currency, these digital assets are themselves a digital form of the legal tender in the country.
Similarities between stablecoins & CBDCs
The greatest similarity between stablecoins and CBDCs is their underlying blockchain technology. The wide utility of crypto applies to them both as they can (ideally) be stored pseudonymously in crypto wallets and lead to faster transactions. Moreover, these transaction details are stored on a publicly distributed ledger.
The second similarity is regarding volatility. Cryptocurrencies are volatile, but stablecoins and CBDCs, despite being digital assets, are more or less stable. One is pegged to a fiat currency, the other is a form of fiat currency itself. This leaves little to no room for volatility.
The third and last similarity is regulation. Both stablecoins and CBDCs are regulated, by private auditing firms in the case of stablecoins and by central banks in the case of CBDCs. Therefore, the chances of a rug pull are very low.

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