A stablecoin is a cryptotoken that has been designed with the aim of keeping its value closely, if not perfectly, aligned with that of another asset.

There are two basic rules for how a stablecoin should operate:

  1. The value of Token A can only be made stable against the value of Token B if there is a known and reliable mechanism for the exchange of Token A for B at a fixed rate and for a quantity equal to the entire supply of Token A.
  2. If Token A is stable against Token B and Token B loses value against Token C, then Token A must also lose value against Token C.

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