What types of stablecoins (and examples) are there?

There are three types of stablecoins – commodity-backed, fiat-backed and cryptocurrency-backed.

Commodity-backed stablecoins are those stablecoins in which their value is fixed to one or more commodities. The amount of commodity (such as a precious metal) used to back the stablecoin has to equal the circulating supply of the stablecoin. Examples include Digix Gold Tokens (DGX), by tying the native token to gold.

Fiat-backed stablecoins value derives from the value of backing fiat currency, such as the USD, which is held by a central intermediary that is regulated. Thus, it is integral that there is trust placed in the custodian of the backing asset for stability purposes. Examples include USD Tether (USDT), which mirrors the price of the USD, issued by Hong Kong-based company Tether. This pegging to the U.S. Dollar is maintained through a sum of cash, fiduciary deposits, treasury bills, reserve repo notes and commercial papers in reserves that is equal in USD value to the number of USDT in total circulation. As of writing, it has an $80 billion dollar market valuation and is ranked 3rd, just behind BTC and ETH. Tether and other fiat-backed stablecoins can be traded on exchanges and are redeemable from the issuer, and are the most popular and used forms of stablecoins that there is. Cryptocurrency-backed are similar to fiat-backed stablecoins in that they derive their value from the value of a backing currency, but that currency is cryptocurrency. The difference between the two types of stablecoins is that the collateralization of the cryptocurrency asset used to back a cryptocurrency-backed stablecoin is done on the blockchain through smart contracts, whereas fiat collateralization typically occurs off the blockchain. Other main features of a cryptocurrency-backed stablecoin include the supply of the stablecoin benign regulated on-chain through the use of smart contracts, and that price stability is achieved through introducing supplementary instruments and incentives, not just solely collateral. As they are more complex than fiat-backed cryptocurrencies, there are greater risks of exploits due to bugs, scamming and hacking involved in smart contract code. Additionally, due to the volatile nature of the cryptocurrency market, large amounts of collateral must be maintained in order to uphold stability. An example of a cryptocurrency-backed stablecoin is WBTC (Wrapped Bitcoin), which was actually the first stablecoin based on the wrapped tokens framework. It is a stablecoin in which Ethereum is backed 1:1 by Bitcoin, allowing dApps native access to Bitcoin.