Collateralized, Algorithmic, Synthetic: A Complete Guide to Stablecoin Types
What is a stablecoin? It is a cryptocurrency whose value is pegged to stable assets such as the US dollar or gold. This makes stablecoins a bridge between the world of traditional finance and decentralized technologies.
Stablecoins can be classified according to several criteria: by type of collateral, by the mechanism that maintains price stability, and by the degree of regulation and centralization.
Types of Stablecoins by Collateral
By this criterion, stablecoins are divided into two large groups: collateralized and non-collateralized.
Algorithmic (Non-Collateralized) Stablecoins
This category includes tokens whose price stability is maintained solely by algorithms and smart contracts, without real reserves. Such an approach makes them extremely vulnerable: during market panic or a sharp drop in demand, the token can lose its peg to the base asset.
The most notorious case was the collapse of TerraUSD (UST) in 2022. Mass conversion of UST into LUNA led to uncontrollable inflation of LUNA supply, which caused both tokens to rapidly lose value. This vicious cycle—falling price, issuance of new tokens, and further devaluation—destroyed the ecosystem in just a few days, wiping out billions of dollars and severely undermining trust in algorithmic stablecoins.
The standard model assumes new tokens are minted and burned through smart contracts, making them mostly decentralized. Hybrid models also exist, such as in the Tron network, which combines an algorithmic mechanism with reserves in BTC, TRX, and USDT. This reserve fund is intended to reduce the risk of total collapse, but experts note that under extreme market conditions, such models may still prove unstable.
Collateralized Stablecoins
These tokens are backed by reserves and are divided into several subcategories:
Fiat-backed: The most common type, backed by fiat currencies like the US dollar at a 1:1 ratio. Example: Ripple USD (RLUSD).
Commodity-backed: These stablecoins are secured by physical assets such as gold, oil, or real estate. Examples: Digix Gold Token (DGX), Petro (backed by oil), SwissRealCoin (backed by real estate).
Crypto-backed: These require overcollateralization with digital assets. For instance, to issue 100 tokens, users must lock $150 worth of crypto. Common collateral includes ETH, WBTC, LINK, and other assets. A well-known example is DAI, as well as newer multi-collateral stablecoins that use ETH, USDC, sDAI, and liquid staking tokens.
Types of Stablecoins by Pegging Mechanism
Initially, stablecoins relied on two mechanisms: collateral reserves or algorithmic mint-and-burn systems. Hence, they are often divided into collateralized and algorithmic types.
A third type has also emerged — synthetic stablecoins. Their stability is maintained through derivatives such as futures contracts and trading strategies like delta-hedging. The most prominent example is sUSD, launched by the Synthetix protocol.
However, synthetic models carry significant risks. sUSD has repeatedly lost its peg to the US dollar, falling below $0.90. In March 2025, another depeg occurred, and by July 2025 the token managed to stabilize only around $0.92.
Types of Stablecoins by Governance Model and Regulation
Centralized Stablecoins
The issuance and circulation of these stablecoins are fully controlled by the issuer — usually a company or organization operating under regulatory frameworks. Examples inсlude USDT, USDC, PYUSD, PAXG, XAUT, EURC, and others.
The rules of issuance are set by the issuer and are often available only to institutional players. For example, Tether requires a minimum redemption amount of $100,000 for direct transactions. Retail users, however, can freely trade tokens like USDT on centralized (CEX) and decentralized exchanges (DEX).
Decentralized Stablecoins
Unlike centralized tokens, decentralized stablecoins operate autonomously via smart contracts. They are usually governed by DAOs (decentralized autonomous organizations), where holders vote on key decisions. This ensures greater transparency and reduces reliance on a single issuer, but also creates risks if smart contract vulnerabilities are exploited.