Stablecoins Unveiled Technical Definitions, Economic Taxonomy, and Comparative Analysis of Fiat-Backed, Crypto-Collateralised, Algorithmic, and CBDC

Stablecoins are a foundational innovation in digital finance engineered to maintain price stability by linking their value to reference assets such as fiat currencies. This chapter provides a technical and economic definition of stablecoins, classifying them into fiat-backed, crypto-collateralised, algorithmic, and hybrid categories. Through comparative analysis of USD Coin (USDC), Tether (USDT), DAI, and TerraUSD (UST), alongside recent hybrid and CBDC implementations, it examines stability mechanisms such as 1:1 reserve backing, smart contract-based collateral management, and protocol-defined supply adjustments. Evidence shows fiat-backed stablecoins maintain stronger pegs and market dominance, while crypto-collateralised and algorithmic models face volatility, capital inefficiency, and systemic risk exemplified by UST's collapse. Hybrid models like DJED and JANUS propose innovative stabilisation techniques though largely theoretical. Drawing on market data and case studies, the chapter highlights regulatory, technical, and policy distinctions between private stablecoins and CBDCs.