162) A stablecoin is a blockchain-based token that is valued by reference to an underlying fiat currency or basket of assets. A key feature of a stablecoin is that it purports to have less volatility than other Virtual Assets, allowing it to operate as a transfer of value within the Virtual Asset ecosystem, including as one leg of a trading pair on an MTF (using Virtual Assets). Demand continues to grow for effective stablecoins within Virtual Asset markets as many participants seek a safe store of value (in terms of reconciliation and to protect from manipulation). Demand has also increased as a result of the general inability to liquidate Virtual Assets into fiat currencies. Additionally, some stablecoins are aimed more as operating as a ‘digital currency’ within the digital economy.
163) Various stablecoin issuers have entered the Virtual Asset ecosystem, with a variety of models used in order to try and stabilise the price of their particular stablecoin. Models include one or a combination of one of the following:
a) Fiat token: the issuer holds fiat currency41 equal to a portion of the total sum of tokens in issuance.
b) Diversification/Basket: Purchasing or tracking the price of a basket of assets including Virtual Assets, commodities, fiat currency, shares, debentures, derivatives and real estate42.
c) Algorithm: the issuance of the quantity of tokens (inflation) is controlled by a proprietary algorithm in consideration of various market and risk factors. These issuers attempt to mimic a central bank’s monetary policy. Others incorporate additional layers of game-theoretic incentives to encourage self-interested user behavior that would be instrumental in sustaining a ‘peg’.
164) The rights of purchasers/issuers of stablecoins vary significantly. Some issuers retain rights to freeze client accounts for any reason, re-hypothecate monies/assets at will, and provide no right of guarantee in relation to the returning of monies to clients.

41 Refer to footnote 2.
42 A basket of assets of such nature may meet the FSRA definition of ‘Structured Product’.