The main types of stablecoins in the market are categorized based on the methods they use to maintain a stable value. These include fiat-collateralized, crypto-collateralized, and algorithmic stablecoins.

1. Fiat collateralized stablecoins are backed by traditional assets like USD, EUR, or other fiat currencies. For each stablecoin issued, an equivalent amount of fiat currency is held in reserve, providing stability. Examples include Tether (USDT) and USD Coin (USDC), which are backed 1:1 with the US dollar. These are widely used due to their reliability and ease of exchange with fiat.

2. Crypto collateralized stablecoins are backed by other cryptocurrencies instead of fiat. To account for cryptocurrency volatility, these stablecoins are typically over-collateralized. For example, MakerDAO’s DAI stablecoin is backed by Ethereum (ETH) and other assets held in excess of the DAI’s value. This model provides decentralization, aligning with crypto’s core principles.

3. Algorithmic stablecoins are not backed by any collateral but instead use algorithms to control supply and demand. These protocols automatically increase or reduce the coin supply to stabilize prices. Examples include TerraUSD (UST) and Ampleforth (AMPL). However, algorithmic stablecoins carry higher risk due to potential instability during market fluctuations.

These types cater to various needs within the crypto ecosystem, from trading and remittances to decentralized finance (DeFi) applications.