A digital token backed by a currency, such as the dollar or the euro.

On November 1, 2008, Satoshi Nakamoto published the Bitcoin White Paper. In the introduction to the book, it is explained that bitcoin is "a purely peer-to-peer electronic money system", with no need to "pass through a financial institution".

A purely peer-to-peer electronic currency must therefore operate without banks or governments, and must enable individuals to transfer value in the same way they exchange coins.

Thus, the very first successful crypto-asset would have the ambition of becoming a store of value recognized and accepted by all. In reality, however, it is still far too volatile to be kept in a wallet without taking account of its variations, as is the case with fiat currencies used in the real economy.

In the highly volatile world of cryptocurrencies, the stablecoins are therefore a necessary refuge. In most cases, these are digital tokens backed by a currency, such as the dollar.

In addition to their usefulness as a hedge against volatility, stablecoins provide the solution to a tax-related need. Even though regulators are far from having finished their work on the taxation of capital gains on crypto-assets, these are already subject to rigorous calculation when you convert your cryptos back into FIAT currencies. In this way, stablecoins enable investors to realize their profits while retaining their crypto-asset portfolio.

Among these tokens, USDC from Circle, USDT from Bitfinex and BUSD from broker Binance are the most widely used. All operate on the same mechanism: 1$ in the bank = 1 token issued. Unfortunately, their stability carries risks due to the opacity of the issuing organizations' accounts.

Stablecoins sorted by capitalization according to CoinGecko

There are other approaches, however, such as Maker's multi-collateral DAI protocol, a token whose value is backed by the dollar, but which is not backed by that same currency. This is a stablecoin decentralized. Its price is maintained in a 1:1 relationship to the dollar. Its value, meanwhile, is guaranteed by the pledging of ETH tokens by multiple issuers.

However, it's hard to consider DAI "secure enough" today when 60% of the collateral used to mint it isn't (USDC, wBTC, TUSD, etc.), while one of the objectives of decentralization remains resistance to censorship.

As need leads to progress, a new kind of stablecoin is born in 2020: stablecoins. algorithms. These are totally decentralized stablecoins, and because their "central bank" is a smart contract, nobody controls it.

In most cases (Amplforth, DSD, Basis cash...), they operate on an elastic supply system, alternating between expansion and reduction phases. In concrete terms, it's the quantity of tokens you own that varies at regular intervals during the rebase to adjust and stabilize the value of your portfolio.

Ranking of algorithmic stablecoins by Coingecko

In theory, this is feasible, but in practice, the greed of market players often reveals flaws in the mechanisms of these protocols, which are not yet fully mature.

To finish on a positive note, there's an algorithmic stablecoin that has managed to maintain its stability at 1$, give or take 0.01$, for almost 1 year now. This is the Frax protocol, although admittedly its stability is still guaranteed at 60% by USDC, but the remaining 40% are indeed autonomous, trustless and censorship-resistant.