Stablecoins are simple to understand. But for those new to the concept, you’ll run into a lot of industry-specific jargon. This guide breaks down some of the most common and important terms in plain English.

1. Algorithmic Stablecoin

A type of stablecoin that tries to hold its value using code instead of reserves. Algorithms expand or contract supply to keep the price of a token stable.

2. CBDC (Central Bank Digital Currency)

A digital version of a national currency, issued directly by a central bank. CBDCs are similar to stablecoins in design but government-owned. They have different tradeoffs around privacy and openness.

3. Collateralization

The assets backing a stablecoin. Collateral can be dollars, Treasury notes, crypto, or even commodities like gold. Strong collateral builds trust that the token is worth what it claims.

4. Fiat-backed Stablecoin

A stablecoin backed one-to-one by real money held in bank accounts, usually U.S. dollars. For every token, there’s a dollar or U.S. Treasury note sitting in reserve. Example: USDC.

5. Fully Reserved

A stablecoin that keeps 100% of its value in safe, liquid assets like cash and/or Treasuries. This means every token is backed and can be redeemed at face value.

6. Minting / Burning

The process of creating (minting) or destroying (burning) stablecoin tokens. When someone deposits dollars with an issuer, new stablecoins are minted. When they redeem, tokens are burned.

7. On-ramp / Off-ramp

The way users move between traditional money and stablecoins. On-ramps let you buy stablecoins with cash from your bank account, and off-ramps let you do the opposite.

8. Overcollateralized

Some stablecoins are backed by more value than they issue. For example, $110 of U.S. Treasury bills might back $100 worth of stablecoins. Noble Dollar (USDN) for instance is overcollateralized by 102%.

9. Peg

The target value of a stablecoin, usually $1 (for USD-backed stablecoins). Staying ‘pegged’ means that the token trades close to that value. If it falls below or above its target value, we say it ‘depegged.’

10. Permissionless

A system where anyone can join, send, or build without needing approval from anyone. Most blockchains are permissionless, but some stablecoins have issuer controls that allow for freezing of funds in emergencies.

11. Redeemability

The ability to swap stablecoins back into real dollars (or whatever the underlying asset is).

12. Settlement

The completion of a transfer. In traditional banking, this can take days for a remittance transfer. With stablecoins, settlement happens in seconds, and it’s final, meaning that the transfer cannot be reverted.

13. Stablecoin Issuer

The entity that creates and manages a stablecoin, like Circle (USDC), M0, or Tether (USDT). Issuers are responsible for holding reserves and ensuring redeemability.

14. Tokenization

The process of turning a real-world asset (like currencies, commodities, equities, etc.) into a digital token on a blockchain. Stablecoins are one of the - if not the most - successful forms of tokenization to date.

15. Yield-Bearing Stablecoin

A newer type of stablecoin that not only holds its value but also passes on rewards from its underlying reserves, like short-term U.S. Treasuries. Example: Noble Dollar (USDN).