# Stablecoins

Stablecoins are cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency like the US Dollar (USD), or backed by real-world assets such as gold or other commodities. They provide the benefits of blockchain technology (transparency, speed, and decentralization) while avoiding the extreme volatility of traditional cryptocurrencies like Bitcoin or Ethereum.

Stablecoins serve as a vital component in the blockchain ecosystem, acting as a bridge between volatile cryptocurrencies and the stability needed for payments, lending, or savings. Common examples include USDT (Tether), USDC (USD Coin), and DAI.

# How Stablecoins Use Oracles

Oracles are essential for the proper functioning of stablecoins, especially in ensuring their value remains stable and accurately pegged to the underlying asset or basket of assets. Here’s how oracles are used:

# Maintaining the Peg

Oracles provide real-time price data to ensure that the stablecoin remains pegged to the intended asset or basket of assets.

Example: DAI relies on oracles to monitor the value of its collateral and maintain a 1:1 peg with USD.

# Collateral Valuation

Stablecoins backed by cryptocurrencies or real-world assets use oracles to assess the value of their collateral in real-time.

Example: A crypto-backed stablecoin like DAI uses oracles to track the price of ETH or other collateral assets to determine if additional collateralization is required.

# Liquidation Triggers

When the collateral value drops below a predefined threshold, oracles trigger liquidation processes to protect the peg and the solvency of the stablecoin.

Example: If the price of ETH falls drastically, MakerDAO uses oracles to identify undercollateralized positions and liquidates them to protect the DAI peg.

# Algorithmic Adjustments

For algorithmic stablecoins, oracles feed market data to adjust supply or demand dynamically to stabilize the token’s price.

Example: An algorithmic stablecoin like UST (Terra) uses price data from oracles to mint or burn tokens to maintain its peg.

# Proof of Reserve Validation

Stablecoins backed by fiat or physical assets rely on oracles to verify the existence and sufficiency of reserves backing the tokens.

Example: Fiat-backed stablecoins like USDC or USDT use oracles to publish proof-of-reserve data for transparency.

# Cross-Border Exchange Rates

Oracles provide exchange rate data for stablecoins used in international payments or remittances.

Example: When using a USD-pegged stablecoin for remittances to Europe, oracles provide USD/EUR exchange rates to ensure accurate transfers.

# Types of Data Used by Oracles in Stablecoins

Stablecoins rely on various types of data supplied by oracles to ensure their stability and integrity.

Fiat Currency Prices: Real-time exchange rates between fiat currencies and cryptocurrencies or stablecoins.

Example: USD to EUR or USD to USDT exchange rates.
Crypto Asset Prices: Prices of cryptocurrencies used as collateral for crypto-backed stablecoins.

Example: ETH, BTC, or other crypto asset prices for collateral valuation.
Reserve Data: Proof-of-reserve updates for fiat or asset-backed stablecoins, showing the amount of collateral held in custody.

Example: A stablecoin issuer providing daily updates on reserves through audited oracle data.
Volatility Metrics: Real-time and historical volatility data to adjust collateral requirements or algorithmic responses.

Example: Stablecoins using volatility data to adjust the ratio of crypto collateralization.
On-Chain Data: Utilization rates of stablecoins on different blockchain platforms.

Example: Monitoring stablecoin circulation and usage in DeFi protocols.

# Why Oracles are Critical for Stablecoins


Accuracy	Stablecoins rely on precise price and reserve data to maintain their peg.
Transparency	Oracles provide verifiable and publicly accessible data, enhancing trust in the stablecoin.
Timeliness	Rapid data updates ensure stablecoins remain resilient to sudden market fluctuations.
Security	Decentralized oracles protect stablecoins from single points of failure or data manipulation.
Global Access	Oracles enable cross-border stability by integrating fiat exchange rates and global economic indicators.

# Contact

At Fact Finance, we provide precise and reliable data feeds to ensure stablecoins maintain their stability, transparency, and trust. Looking to strengthen your stablecoin’s peg and resilience? Get in touch with our team to explore how Fact Finance can deliver the oracle solutions you need.

Projects Team [email protected]