Abstract

a. The need for a hybrid stablecoin

The digital asset landscape has experienced tremendous growth in recent years, with cryptocurrencies becoming an essential part of the global financial ecosystem. Stablecoins, which are digital tokens pegged to a stable asset like a fiat currency, have emerged as an essential tool for traders, investors, and decentralized finance (DeFi) platforms. However, existing stablecoin models have various limitations, and there is a need for a stablecoin that can maintain its peg while providing enhanced stability, security, and scalability.

Overview of stablecoins and their importance in the crypto ecosystem

Stablecoins play a crucial role in the crypto ecosystem, enabling various use cases such as:

• Providing a stable store of value for users and investors

• Facilitating efficient and secure cross-border transactions

• Reducing the risks associated with price volatility

• Serving as a vital component in decentralized finance (DeFi) applications

• There are several types of stablecoins, each with their advantages and drawbacks:

Fiat-collateralized stablecoins: These stablecoins are backed by reserves of fiat currency, held in banks or other regulated financial institutions. While they provide a high degree of stability, they are subject to centralization risks and may require regular audits to ensure transparency.

Crypto-collateralized stablecoins: These stablecoins are backed by other cryptocurrencies as collateral. While they offer a more decentralized solution, they are still exposed to the volatility of the underlying crypto assets and may require over-collateralization to maintain stability.

Algorithmic stablecoins: These stablecoins rely on algorithms and smart contracts to maintain their peg without any collateral. They offer a fully decentralized solution but can be more complex and less stable, particularly during periods of high market volatility.

In light of these limitations, a hybrid stablecoin model that combines the best features of both collateralized and algorithmic approaches can offer a more robust solution for maintaining price stability and fostering broader adoption of digital assets.