Alto
Glossary
Stablecoins

What are stablecoins?

Stablecoins are meant to facilitate the usage of cryptocurrency as a medium of exchange. Cryptocurrencies like Bitcoin and Ether can be quickly converted into stablecoins to later be converted into another crypto or fiat currency, while in theory holding a constant value.

How stablecoins accomplish this, though, can vary considerably.

There are four types of stablecoins:

  1. Fiat-Backed Stablecoins: The most common type of stablecoins, these are collateralized by traditional currencies. Often this is the U.S. dollar, which has long played the role of global reserve currency. That means that for every $1 in stablecoin created, there should be $1 in USD, euros, or whatever fiat currency the stablecoin is backed by, in its treasury. Likewise, for every $1 taken out, one stablecoin is “burned” to maintain balance. Examples of fiat-backed stablecoins include GYEN, PAX, USDC, and USDT.
  2. Crypto-Backed Stablecoins: Backed by other cryptocurrencies, these stablecoins are typically over-collateralized to guard against extreme price fluctuations. Crypto-backed stablecoins might hold as much as 150% of their market cap to ensure sufficient liquidity. Examples of crypto-backed stablecoins include BUSD, DAI, and MUSD.
  3. Commodity-Backed Stablecoins: Though less common, these stablecoins use commodities as collateral – most often gold, but also silver, oil, and real estate. Examples of commodity-backed stablecoins include PAXG and XAUT.
  4. Algorithmic Stablecoins: Algorithmic stablecoins may seem more complicated in that they’re not backed by “real-world” assets. Rather, they’re controlled by smart contracts. To ensure a steady 1:1 connection, tokens are minted (added to circulation) or burned (removed from circulation). Examples of algorithmic stablecoins include FORTH, RAI, and UST.

Primarily, the purpose of stablecoins is to provide cryptocurrency holders the option to sell a coin or token and then hold their funds without being required to immediately convert to USD or another cryptocurrency.

Nonetheless, stablecoins present an opportunity to turn a profit. Investors do this by way of what is called arbitrage.

Subscribe to our newsletter to learn more about Alto.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Explore more terms

Private markets vs. public markets

Absolute vs. risk-adjusted performance

Carry or carried interest

Invest

CryptocurrencyIntegrated PartnersMarketplacePrivate Raise Portal

Raise Capital

Integrated PartnershipMarketplacePrivate Raise Portal

Learn

Thought LeadershipBlogHelp CenterResearch

Company

About AltoCareersContactPressStatus

Legal

Legal TermsPrivacy PolicyTerms of Service
Refer a friend
Pricing
FAQs

©Alto Solutions, Inc. 2024 All Rights Reserved.

Alto Solutions, Inc. d/b/a AltoIRA (“Alto”) is an administrator of self-directed individual retirement accounts and is not a registered or licensed broker, dealer, broker-dealer, funding portal, cryptocurrency exchange, investment advisor or investment manager. Neither Alto nor any of its affiliates is an FDIC-insured bank. Banking services provided to Alto are by BankProv (Bank) Member FDIC / Member DIF. The FDIC insures each AltoIRA account holder up to $250,000 based on deposit insurance rules in the event of bank failure. Certain conditions must be met for pass-through insurance coverage to apply. The Depositors Insurance Fund (DIF) insures all deposits above the FDIC depositor limit when placed with BankProv. Securities and Crypto assets are not insured by the FDIC, may lose value, are not deposits or other obligations of the Bank, and are not guaranteed by the Bank. Alto does not control or monitor the operation or conduct of the Bank or any third-party investment platforms, funds, cryptocurrency exchanges or issuers, or their offerings. Whenever making an investment decision, investors should consult with their tax attorney or financial professional. Investors are responsible for conducting their own due diligence regarding investments, for using their Alto accounts in compliance with law, and for all tax and other risks and obligations arising from account transactions.

Alto Securities, LLC (“Alto Securities”) is a broker-dealer and may act as the placement agent of funds and other investments offered by issuers with which it has a relationship. Neither Alto nor Alto Securities nor any of their affiliates provide any investment advice or make any investment recommendations to any persons, ever, and no communication herein or otherwise shall be construed as investment advice or a recommendation about any specific security offering, investment, asset, or fund. Information provided on this website by Alto and its affiliates does not constitute an offer, nor the solicitation of an offer to buy or subscribe to, any securities to any person in any jurisdiction. Any communication made by Alto or any of its affiliates with regard to opening or using an IRA account shall not be construed as a recommendation, call to action, or investment strategy to establish a particular account type (e.g. traditional, Roth, or SEP). Alto provides investors self-directed accounts and neither recommends an account type to investors for a fee as part of its services or products, nor advises customers in relation to the tax consequences of accounts, including but not limited to penalties associated with withdrawals, application of required minimum distributions, holdings of employer stock, and special features of an existing account.

Investing in private securities, cryptocurrencies, securitized assets, and other alternative investments (“Private Securities”) is intended for highly sophisticated investors and involves substantial risks. These risks include but are not limited to a lack of operating history, leverage, liquidity of the portfolio, segregated portfolio fund risk, diversification and concentration risk, and long-term investment risk. Furthermore, there is a risk that investors may receive little or no return on their investment or may lose part or all of their investment. For example, the success of a fund’s investment objective depends, in part, on the effective deployment of its assets by the managers of the fund. However, there can be no assurance that the managers will successfully achieve the fund’s investment objective or deliver positive returns.

Investing in Private Securities carries a high risk and is considered speculative. There is no guarantee that an issuer or its investment strategies will succeed under all market conditions. The success or failure of a fund, for example, and its value may be affected by numerous factors, including investment performance, realized and projected market returns, fluctuations in market interest rates, and other pertinent factors.

It is important to note with regard to any reference to high-net-worth individuals and institutions, that these investors often have substantial financial resources and longer investment horizons, which may differ from those of individual investors. Potential investors should carefully consider their own financial circumstances, risk tolerance, and investment objectives before participating in these opportunities. Past performance is not indicative of future results, and all investments carry inherent risks. Diversification does not eliminate risk, and there is no guarantee of returns on investments. It is advisable to consult with financial professionals and conduct due diligence before making any investment decisions.

Alto Securities, LLC is a member of FINRA/SIPC

‍Where Alto Securities, LLC serves as the placement agent for the offering of a fund or other issuer, it will be compensated based on the investments made in the fund. Check the background of Alto Securities, LLC on FINRA BrokerCheck.

Alto®, The Alternative IRA®, the Alto logo and Alto CryptoIRA® are trademarks of AltoIRA.

All other trademarks are the properties of their respective owners.