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Frequently Asked Questions
A1. Blockchain is a decentralized, distributed digital ledger that records transactions across multiple computers securely and transparently. Each block contains data, a timestamp, and a cryptographic hash of the previous block, ensuring immutability. Blockchain isn’t just for finance. It’s useful anywhere that requires trust, transparency, efficiency, or fraud prevention.
A2. Stablecoins are cryptocurrencies designed to maintain a stable value by pegging them to a reserve asset like the U.S. dollar, euro, or commodities such as gold. They reduce volatility compared to other cryptocurrencies like Bitcoin or Ethereum.
A3. They provide price stability, making them useful for payments, remittances, and as a store of value. They also act as a bridge between traditional finance (fiat currency) and digital assets.
A4. Fiat-collateralized: Backed 1:1 by reserves of fiat currency (e.g., USDC, USDT). Crypto-collateralized: Backed by other cryptocurrencies, often over-collateralized to account for volatility (e.g., DAI). Algorithmic: Use smart contracts and algorithms to control supply and stabilize value (e.g., Terra USD before collapse).
A5. Through collateral reserves or algorithmic mechanisms. Fiat-backed stablecoins are audited and redeemable for the underlying fiat. Crypto-backed rely on over-collateralization and liquidation mechanisms. Algorithmic rely on supply/demand adjustments.
A6. Reserve risk: lack of transparency in collateral.
Regulatory risk: governments may impose restrictions.
Smart contract vulnerabilities for crypto/algorithmic stablecoins. De-pegging risk when collateral or mechanisms fail.
A7. They act as a medium of exchange, lending collateral, liquidity in pools, and yield farming assets. Stablecoins bring predictability in value, enabling long-term DeFi strategies without volatility risk.
A8. Regulators focus on reserve transparency, consumer protection, systemic risk, and anti-money laundering compliance. In the U.S., agencies like the SEC, CFTC, and Federal Reserve are exploring frameworks for stablecoin regulation.
A9. They bypass traditional banking intermediaries, reduce fees, and settle transactions almost instantly across borders, compared to days with SWIFT or wire transfers.
A10. They can complement fiat but are unlikely to replace it fully in the near term. Central Bank Digital Currencies (CBDCs) may also compete with or integrate with stablecoins.
A11. USDT (Tether) – Largest by market cap, fiat-backed.
USDC (USD Coin) – Backed 1:1 by U.S. dollar reserves.
DAI – Crypto-collateralized stablecoin managed by MakerDAO.
PAX Gold (PAXG) – Gold-backed stablecoin.
A12. Provide liquidity for trading and settlement.
Enable efficient cross-border transactions.
Reduce counterparty and settlement risk.
Open new revenue models in DeFi and tokenized assets.
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