Fractional Stablecoins Definition
Fractional stablecoins are a type of cryptocurrency that maintains its value by reserving only a fraction of its supply in stable assets. Unlike conventional stablecoins, which are 100% backed by reserves, fractional stablecoins have a portion of their value backed by collateral while the remainder is supported by algorithms.
Fractional Stablecoins Key Points
- Fractional Stablecoins are partially backed by stable assets to maintain their value.
- The remaining value is supported and regulated by algorithms.
- Fractional stablecoins are considered riskier than conventional stablecoins.
- Despite the risk, their hybrid nature provides more scalability and liquidity.
- Examples of fractional stablecoins include Fei Protocol and FRAX.
What are Fractional Stablecoins?
Fractional stablecoins are a new variety of cryptocurrency that combines aspects of fully collaterized stablecoins and algorithmic stablecoins. This dual nature allows fractional stablecoins to enjoy the confidence provided by the collateraled portion and the scalability offered by the algorithmic portion.
Why are Fractional Stablecoins Important?
Fractional stablecoins present an innovative approach to achieving price stability in the volatile world of cryptocurrencies. Their hybrid structure harnesses the advantages of both collaterized and algorithmic stablecoins, adjusting their supply according to market dynamics—increasing during periods of high demand and retracting during low demand.
How do Fractional Stablecoins Work?
A fractional stablecoin uses part of its reserve to back its value with stable assets. The rest of the coin’s value is algorithmically regulated. This mechanism allows the coin to maintain a peg to a stable asset while also having the flexibility to expand and contract its supply.
Who uses Fractional Stablecoins?
Fractional stablecoins are used by a broad range of individuals and entities. These include traders, investors, and even decentralized finance (DeFi) platforms that require stable assets for their operations. Due to their hybrid nature, they are particularly attractive to those seeking liquidity and stability in the challenging cryptocurrency market.
When can Fractional Stablecoins be Used?
Fractional stablecoins can be used anytime within the cryptocurrency market. They are especially useful during times of high volatility as they offer a certain level of price stability. Their adaptive algorithm also ensures that they are readily available for use during demand surges.
Where are Fractional Stablecoins Available?
Fractional Stablecoins can be acquired from various cryptocurrency exchanges that offer them. They can also be minted by participating in the DeFi platforms that issue these types of stablecoins. Some examples of fractional stablecoins include the Fei Protocol and the FRAX stablecoin.
