[Glossary] Stablecoins & CBDCs Terms

CryptoKas

Below is a concise glossary of key terms you’ll encounter in Stablecoins & CBDCs discussions. Definitions are clear and practical—ideal for anyone exploring on-chain cash and central-bank digital money.

Stablecoin Basics

Stablecoin: A cryptocurrency designed to maintain a stable value, usually pegged 1:1 to a fiat currency (e.g., USD).
Fiat-Collateralized: Backed by reserves of real currency held in a bank (e.g., USDC, USDT).
Crypto-Collateralized: Over-collateralized with other crypto assets to absorb volatility (e.g., DAI).
Algorithmic Stablecoin: Uses smart-contract algorithms to expand/contract supply and keep the peg (e.g., Terra Classic’s earlier model).

Collateral & Peg Mechanisms

Reserve Ratio: The amount of backing assets held per stablecoin in circulation (e.g., 1.00 USDC per $1 coin).
Over-Collateralization: Locking more value (e.g., $150 in ETH) to mint $100 of stablecoins, ensuring stability if collateral drops.
Peg Stability Module (PSM): A protocol mechanism that swaps collateral for stablecoins at a fixed rate to defend the peg.
Rebase: Elastic-supply mechanism that adjusts each holder’s balance proportionally to maintain price (less common).

CBDC Fundamentals

CBDC (Central Bank Digital Currency): A digital form of a country’s fiat currency issued and regulated by its central bank.
Retail CBDC: Designed for everyday consumer use, similar to digital cash in a wallet app.
Wholesale CBDC: Restricted to financial institutions for large-scale settlements and interbank transfers.
Two-Tier Model: Central bank issues CBDC to commercial banks, which distribute it to end users—leveraging existing banking infrastructure.

Use Cases & Integrations

On-Ramp / Off-Ramp: Converting between stablecoins/CBDCs and traditional bank accounts.
Programmable Payments: Embedding conditions (e.g., time-locks, multi-sig) into money transfers for automation (e.g., payroll).
Cross-Border Settlements: Fast, low-cost transfers between countries using stablecoin rails or wholesale CBDCs.
DeFi Integration: Using stablecoins as collateral, liquidity pool tokens, or yield-earning assets in DeFi protocols.

️ Risks & Considerations

Regulatory Risk: Potential for government restrictions, freezes or new rules that affect issuance and use.
Counterparty Risk: Reliance on the issuer’s solvency and honesty to hold proper reserves.
Smart-Contract Risk: For crypto-collateralized and algorithmic models—bugs or exploits can break the peg.
Redemption Risk: Limits or fees on converting stablecoins back to fiat reserves—keep an eye on terms of service.

️ Tools & Analytics

Attestation Reports: Regular audits or attestations confirming that reserves match outstanding stablecoins.
On-Chain Explorer: Checking mint/burn transactions and contract balances to verify collateral flows.
Liquidity Pools: Platforms (e.g., Curve Finance) where stablecoins are paired to earn yield with minimal impermanent loss.
CBDC Sandboxes: Pilot environments run by central banks to test retail or wholesale CBDC deployments in a controlled setting.

Pin this thread as your go-to reference for stablecoins and CBDCs. If you spot a missing term or want real-world examples, drop a comment below!