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Aiming for decentralization, crypto-backed stable coins are supported by other cryptocurrencies locked within smart contracts rather than held by a centralized entity. An example is DAI, which is generated when users lock various crypto assets into a smart contract. This method reduces reliance on a single company and aligns with the ethos of decentralization but can introduce volatility due to the fluctuating value of collateral assets.
3. Commodity-Backed Stable Coins
These stable coins are backed by physical commodities, such as gold. For example, Pax Gold and Tether Gold track the price of actual gold bars stored securely in various locations. By linking their value to tangible assets, these stable coins aim to provide stability while offering exposure to commodities.