Stablecoins

There are three main stablecoin models:

• Custodial stablecoins are issued by a central operator and backed by collateral held in a bank or other financial institution. Custodial stablecoins are typically fully collateralized — $1 of assets held in reserve for every unit of stablecoin in circulation — and maintain their value based on the operator’s promise to pay redemptions on demand.
• Decentralized stablecoins consist of automated software protocols on public blockchains that maintain stable value without relying on a central issuer. Decentralized stablecoins are typically over-collateralized — more than $1 of assets held in the protocol for every unit of stablecoin in circulation — and are backed by digital assets held in transparent smart contracts rather than in a bank or other institution.
• Algorithmic stablecoins seek to maintain stable value with less than $1 of collateral per unit of stablecoin in circulation. Instead of using collateralization to maintain stable value, algorithmic stablecoins rely on economic incentives designed to influence market forces of supply and demand.

Stablecoins take advantage of all of the benefits of public blockchains, including speed, security, accessibility, and transparency, without the drawback of price volatility that characterizes most other digital assets. Unlike traditional electronic payment systems, stablecoins allow users to transfer any amount of value to any person in the world at low cost and with nearly instant settlement. Stablecoins also provide US policymakers with a significant opportunity to reinforce global dollar dominance in international trade by spreading dollars far and wide. We support US policies that recognize the transformative potential of stablecoins and enable American companies and citizens alike to enjoy the benefits they offer.