When does it stop being a stablecoin?

In “traditional finance”, we’ve got something called a derivative. In short, a derivative derives it’s value based on some underlying asset.

In the “new finance” world of blockchain and DeFi, we’ve got something called a stablecoin, where the price of the coin is pegged to some underlying asset.

So a stablecoin is just a derivative then, no? Usually people think of coins pegged to the USD when they hear stablecoin, but it doesn’t need to be. It could be pegged to anything, just like a derivative could use any underlying asset and definition on top.

If it’s not the underlying asset, maybe it’s the technology? A stablecoin needs to be a smart contract deployed to a blockchain?

We know that there exists centralized stablecoins like USDC, which, from the technology point of view are very basic. Practically just a simple ERC-20 contract with some admin features. There’s also stablecoins with a lot of technical complexity, like DAI, since they are fully on-chain with on-chain collateral. Both of these extremes are covered by the term.

As DeFi grows up and blockchains become mainstream, I would suspect there will be a large overlap between the terms, and as some underlying assets aren’t very stable when compared to the usual reference points (like USD/EUR/GBP), having the term stable in stablecoin might just be too confusing.

Stablecoins probably will just become on-chain derivatives..

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