Crypto Basics

Types of Stablecoins: A Complete Guide for 2025

Discover the types of stablecoins—fiat-backed, crypto-backed, algorithmic, and commodity-based. Learn how they work, their pros and cons, and which is best for your crypto strategy in 2025.
Token Metrics Team
8 min
MIN

The cryptocurrency market is famous for volatility—Bitcoin can swing by thousands of dollars in a day, and altcoins can rise or crash in hours. But what if you need price stability? That’s where stablecoins come in.

Stablecoins are digital currencies pegged to stable assets like the US dollar, gold, or even algorithmically maintained price levels. They bridge the gap between the speed and efficiency of blockchain technology and the reliability of traditional money.

As of 2025, stablecoins account for over $140 billion in circulating supply, making them essential for traders, investors, and decentralized finance (DeFi) users. But not all stablecoins are the same—different types use different mechanisms to maintain their stability, each with unique pros and cons.

In this guide, we’ll break down the types of stablecoins, how they work, their risks, and which might be best for your needs.

What Are Stablecoins?

A stablecoin is a cryptocurrency designed to maintain a stable value by pegging its price to a reference asset. Most stablecoins are pegged to fiat currencies like the U.S. dollar (e.g., 1 USDT ≈ $1), but some track commodities (like gold) or are algorithmically balanced to hold value.

They are widely used for:

  • Trading: Moving quickly in and out of volatile assets.
  • DeFi: Providing liquidity, borrowing, and earning yields.
  • Remittances: Sending low-cost, fast cross-border payments.
  • Hedging: Protecting against crypto market volatility.

Types of Stablecoins

There are four main types of stablecoins:

  1. Fiat‑Collateralized Stablecoins
  2. Crypto‑Collateralized Stablecoins
  3. Algorithmic (Non‑Collateralized) Stablecoins
  4. Commodity‑Backed Stablecoins

Each has a different method of maintaining its peg. Let’s break them down.

1. Fiat‑Collateralized Stablecoins

Definition:
These are backed 1:1 by traditional currencies like the U.S. dollar, euro, or yen. For every stablecoin issued, an equivalent amount of fiat is held in reserve by a trusted custodian.

How They Work:
If you buy 1 USDC, Circle (its issuer) holds $1 in a regulated bank account or short-term U.S. Treasury securities. When you redeem that stablecoin, the issuer sends you the equivalent amount in fiat and burns the coin.

Examples:

  • Tether (USDT) – Largest stablecoin by market cap; widely used on exchanges.
  • USD Coin (USDC) – Issued by Circle, fully regulated and audited.
  • TrueUSD (TUSD) – Offers real-time attestation of reserves.
  • PayPal USD (PYUSD) – Launched by PayPal for payments and DeFi.

Pros:

  • High stability – Pegged directly to fiat.
  • Transparent – Many provide audits and attestations.
  • Easy adoption – Ideal for traders, merchants, and payment platforms.

Cons:

  • Centralization – Custodians control reserves and can freeze accounts.
  • Regulatory risks – Subject to government oversight.
  • Less transparency for some issuers – (e.g., Tether faced scrutiny over its reserves).

2. Crypto‑Collateralized Stablecoins

Definition:
These are backed by cryptocurrencies like Ethereum or Bitcoin instead of fiat. Because crypto is volatile, these stablecoins are overcollateralized (e.g., $150 in ETH backs $100 in stablecoins).

How They Work:
When you mint a crypto-backed stablecoin like DAI, you deposit collateral (e.g., ETH) into a smart contract. If the collateral value drops too much, the contract automatically liquidates some assets to maintain the peg.

Examples:

  • DAI – Issued by MakerDAO, backed by ETH, USDC, and other assets.


  • sUSD – A synthetic USD issued by Synthetix.
  • MIM (Magic Internet Money) – Collateralized by multiple crypto assets.

Pros:

  • Decentralized – No single company controls reserves.
  • Transparent – All collateral balances are viewable on-chain.
  • Resistant to censorship – Issuers can’t freeze accounts.

Cons:

  • Volatility risk – Collateral can lose value quickly, requiring liquidations.
  • Overcollateralization – Ties up more capital than fiat-backed options.
  • Complexity – Requires understanding of DeFi mechanics.

3. Algorithmic (Non‑Collateralized) Stablecoins

Definition:
These don’t use physical reserves. Instead, they maintain their peg via algorithmic supply adjustments—minting or burning tokens to balance price around $1.

How They Work:
If demand increases and the price rises above $1, the protocol mints more coins. If it falls below $1, the protocol burns coins or incentivizes users to buy them back.

Examples:

  • Ampleforth (AMPL) – Elastic supply adjusts daily.
  • UST (TerraUSD) – Infamously collapsed in 2022 after its peg broke.
  • Frax (FRAX) – Uses a hybrid model: partly collateralized, partly algorithmic.

Pros:

  • Highly capital-efficient – Doesn’t require large reserves.
  • Decentralized – Often governed by smart contracts and DAOs.

Cons:

  • Peg instability – Prone to “death spirals” when market confidence drops.
  • Complex mechanisms – Harder for average users to understand.
  • History of failures – UST/LUNA crash eroded trust in algorithmic coins.

4. Commodity‑Backed Stablecoins

Definition:
These stablecoins are pegged to commodities like gold, silver, or oil, giving them intrinsic value beyond fiat.

How They Work:
For every coin issued, an equivalent amount of the commodity is held in a secure vault. For example, owning 1 PAX Gold (PAXG) means you own 1 troy ounce of physical gold stored by the issuer.

Examples:

  • PAX Gold (PAXG) – Backed by physical gold.


  • Tether Gold (XAUT) – Gold-backed token from Tether.
  • Digix Gold (DGX) – Pegged to gold bars in Singapore vaults.

Pros:

  • Hedge against inflation – Commodities like gold retain value during economic uncertainty.
  • Diversification – Offers exposure to both crypto and commodities.

Cons:

  • Low liquidity – Less widely used than fiat-backed stablecoins.
  • Storage & audit challenges – Requires trust in the issuer to maintain reserves.

Why Do Stablecoins Matter?

Stablecoins are the backbone of DeFi and crypto trading.

  • Trading & arbitrage: They provide a quick way to exit volatile positions without converting back to fiat.
  • Cross-border payments: Cheaper and faster than SWIFT or remittance services.
  • DeFi participation: Essential for lending, borrowing, yield farming, and liquidity pools.
  • On-ramp/off-ramp: They simplify converting between traditional finance and blockchain.

Which Type of Stablecoin Should You Use?

If you want simplicity & security: Go with fiat-backed coins like USDC or PYUSD.

If you value decentralization: Choose crypto-collateralized options like DAI.

If you’re comfortable with high risk: Explore algorithmic models like FRAX (but beware of peg risks).

If you want inflation protection: Consider commodity-backed coins like PAXG.

Key Risks of Stablecoins

  • Regulation: Governments are increasing oversight of fiat-backed coins.
  • Centralization: Some issuers can freeze funds or blacklist wallets.
  • Smart contract risks: DeFi-based stablecoins can suffer from bugs or exploits.
  • Peg breaks: Algorithmic models are especially vulnerable to confidence loss.

The Future of Stablecoins

In 2025, stablecoins are evolving to meet regulatory and market demands:

  • Central Bank Digital Currencies (CBDCs): Governments are issuing digital dollars and euros, potentially competing with stablecoins.
  • Regulated issuers: Projects like USDC are working closely with regulators to ensure compliance.
  • Hybrid models: Combining fiat and algorithmic elements (e.g., Frax) to enhance stability.

As DeFi expands and global adoption grows, stablecoins will remain at the heart of crypto finance.

Final Thoughts

Stablecoins are more than just “digital dollars.” They’re a critical bridge between traditional finance and blockchain innovation.

  • Fiat-backed stablecoins bring stability and ease of use.
  • Crypto-collateralized ones offer transparency and decentralization.
  • Algorithmic models push innovation but carry higher risks.
  • Commodity-backed coins provide a hedge against inflation and diversify exposure.

Choosing the right type depends on your risk tolerance, use case, and trust level. Whether for trading, saving, or participating in DeFi, understanding the types of stablecoins can help you navigate the crypto ecosystem with confidence.

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Practical Guide to Building Robust REST APIs

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REST APIs power modern web and mobile applications by providing a consistent, scalable way to exchange data. Whether you are integrating microservices, powering single-page apps, or exposing data for third-party developers, understanding REST architecture, design norms, and operational considerations is essential to build reliable services.

Overview: What a REST API Is and When to Use It

Representational State Transfer (REST) is an architectural style that leverages standard HTTP methods to manipulate resources represented as URLs. A REST API typically exposes endpoints that return structured data (commonly JSON) and uses verbs like GET, POST, PUT/PATCH, and DELETE to indicate intent. REST is not a protocol; it is a set of constraints—statelessness, uniform interface, and resource-based modeling—that make APIs predictable and cache-friendly.

When evaluating whether to build a REST API, consider use cases: straightforward CRUD operations, broad client compatibility, and caching benefit from REST. If you need strong typing, real-time streaming, or more efficient batching, compare REST to alternatives like GraphQL, gRPC, or WebSockets before deciding.

Designing RESTful Endpoints & Best Practices

Good API design starts with resource modeling and clear, consistent conventions. Practical guidelines include:

  • Resource naming: Use plural nouns for resource collections (e.g., /users, /orders) and hierarchical paths for relationships (/users/{id}/orders).
  • HTTP methods: Map actions to verbs—GET for retrieval, POST for creation, PUT/PATCH for updates, DELETE for removals.
  • Status codes: Return appropriate HTTP status codes (200, 201, 204, 400, 401, 403, 404, 429, 500) and include machine-readable error payloads for clients.
  • Versioning: Prefer URI versioning (/v1/) or content negotiation via headers; plan for backward compatibility to avoid breaking clients.
  • Pagination & filtering: Provide limit/offset or cursor-based pagination and consistent filter/query parameters to support large datasets.
  • Documentation: Maintain up-to-date, example-driven docs (OpenAPI/Swagger) and publish clear request/response schemas.

These conventions improve discoverability and reduce integration friction for third-party developers and internal teams alike.

Security & Authentication for REST APIs

Security is a primary operational concern. REST APIs must protect data in transit and enforce access controls. Key controls include:

  • Transport Layer Security (TLS): Enforce HTTPS for all endpoints and redirect HTTP to HTTPS to prevent eavesdropping and man-in-the-middle attacks.
  • Authentication: Use established schemes such as OAuth 2.0, JWTs, or API keys depending on client types. Short-lived tokens and refresh flows reduce risk from token leakage.
  • Authorization: Implement fine-grained access checks (role-based or attribute-based) server-side; never rely on client-side enforcement.
  • Input validation & rate limiting: Validate and sanitize inputs to avoid injection attacks, and apply throttles to mitigate abuse and DoS threats.
  • Secrets management: Store credentials and private keys in secure vaults and rotate them regularly.

For teams integrating crypto or blockchain data, AI-driven research platforms can automate risk scanning and anomaly detection. For example, Token Metrics provides analytical signals that teams can cross-reference with on-chain activity when modeling API access patterns.

Performance, Testing, and Deployment

Operational resilience depends on performance engineering and testing. Practical steps include:

  • Caching: Use HTTP cache headers (ETag, Cache-Control) and CDN layering for public, cacheable endpoints.
  • Load testing: Simulate realistic traffic shapes, including burst behavior, to size servers and tune autoscaling rules.
  • Observability: Emit structured logs, request traces, and metrics (latency, error rates) and instrument distributed tracing (OpenTelemetry) for root-cause analysis.
  • CI/CD & contract testing: Automate schema validations, run contract tests against staging environments, and promote releases only when compatibility checks pass.
  • Graceful degradation: Handle downstream failures with timeouts, retries with backoff, and circuit breakers to avoid cascading outages.

Adopt a measurable SLA approach and define clear error budgets to balance feature velocity and reliability.

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FAQ: What is a REST API?

A REST API is an application programming interface that follows REST constraints. It exposes resources via URIs and uses HTTP methods to perform operations, typically exchanging JSON payloads.

FAQ: How does REST compare to GraphQL?

REST emphasizes multiple endpoints and resource-based modeling, while GraphQL provides a single endpoint that lets clients request precisely the fields they need. Choose based on data-fetching patterns, caching needs, and client complexity.

FAQ: What authentication methods are appropriate for REST APIs?

Common methods include OAuth 2.0 for delegated access, JWTs for stateless token-based auth, and API keys for service-to-service calls. Use short-lived tokens and secure storage practices to reduce exposure.

FAQ: How should I version my API?

Versioning strategies include URI versioning (/v1/resource), header-based negotiation, or semantic compatibility practices. Aim to minimize breaking changes and provide migration guides for clients.

FAQ: What are practical ways to test a REST API?

Combine unit tests, integration tests, contract tests (e.g., using OpenAPI), and end-to-end tests. Include load and chaos testing to validate behavior under stress and partial failures.

FAQ: How can I make my REST API more resilient?

Implement retries with exponential backoff, set sensible timeouts, use circuit breakers, and degrade gracefully. Observability (tracing and metrics) is essential to detect and respond to issues quickly.

Disclaimer

This article is for educational purposes and technical guidance only. It does not constitute investment advice, recommendations, or endorsements. Evaluate tools and services independently, and follow organizational security and compliance policies when designing and deploying APIs.

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REST APIs are the backbone of modern web and mobile integrations. This guide breaks down core concepts, practical design patterns, and operational practices so engineers and product teams can evaluate, build, and maintain resilient RESTful services.

What is a REST API and why it matters

Representational State Transfer (REST) is an architectural style for distributed systems. A REST API exposes resources—typically represented as JSON or XML—over HTTP using standard verbs such as GET, POST, PUT, PATCH, and DELETE. The simplicity and ubiquity of REST make it a go-to choice for connecting microservices, mobile apps, and third-party integrations.

When assessing a REST API, focus on clarity of resource modeling, consistency of endpoints, and predictable use of HTTP semantics. Well-designed REST APIs reduce onboarding friction, simplify client code, and enable easier testing and monitoring across a heterogeneous environment.

Core principles and design patterns

Apply a few core principles to make a REST API robust and maintainable:

  • Resource-first design: Model nouns (users, orders, transactions) as resources with clear URIs, e.g., /api/v1/users/{id}.
  • Statelessness: Each request should contain all information needed to process it. This simplifies load balancing and scaling.
  • HTTP semantics: Use status codes (200, 201, 204, 400, 401, 404, 429, 500) appropriately and document their meaning for each endpoint.
  • Versioning: Prefer explicit versioning (/v1/) or content negotiation to avoid breaking clients when you evolve APIs.
  • Pagination and filtering: For list endpoints, implement cursor-based pagination and consistent filtering/query parameters to keep payloads bounded.

Pattern-based approaches—such as HATEOAS (hypermedia links), idempotent write operations, and resource representations optimized for client needs—help balance flexibility with performance. Choose patterns that align with your ecosystem and developer experience goals.

Authentication, rate limiting, and error handling

Security and reliability are non-negotiable. Common authentication options include API keys, OAuth 2.0 bearer tokens, and mutual TLS for service-to-service communication. For public APIs, use scopes and granular permissions.

Rate limiting and throttling protect backend systems from spikes and can be implemented at API gateway or service mesh layers. Communicate limits via headers (e.g., X-RateLimit-Remaining) and return 429 responses with retry guidance.

Error handling should be consistent and machine-readable. A common pattern is a top-level error object with code, message, and optionally a trace or documentation URL. For example:

  1. Return 4xx for client errors with actionable messages.
  2. Return 5xx for server-side failures and include correlation IDs for debugging.
  3. Document idempotency behavior for POST/PUT when retries are possible.

Practical use cases and integration patterns

REST APIs are used across many scenarios. Typical patterns include:

  • Backend-for-frontend (BFF): A thin API tailored to a specific client type (web, mobile) to aggregate multiple services.
  • Service composition: Use REST endpoints to compose business flows across microservices with clear contracts and fallbacks.
  • Event-driven hybrid: Combine REST for synchronous queries and webhooks or message queues for asynchronous events.

When integrating third-party REST APIs, perform a compatibility audit: authentication model, rate limits, data formats, error semantics, and SLA expectations. Automated contract tests (e.g., Pact) and API specifications (OpenAPI/Swagger) reduce integration risk and speed up CI/CD pipelines.

Testing, monitoring, and observability

Operational maturity for REST APIs comes from layered testing and observability:

  • Contract and regression tests: Use OpenAPI to generate tests and validate responses against schemas.
  • Load and chaos testing: Validate behavior under realistic and degraded conditions, including simulated rate-limit breaches and latency spikes.
  • Tracing and metrics: Instrument endpoints with request latency, error rates, and throughput. Distributed tracing helps correlate calls across services.

Expose health checks (liveness, readiness) and use alerting thresholds anchored to business metrics (e.g., error budget, p95 latency). Observability data enables root-cause analysis and informs capacity planning.

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FAQ: What is REST and how does it differ from other styles?

REST is an architectural style emphasizing resources exposed over HTTP with stateless interactions and use of standard verbs. It differs from RPC (remote procedure call) in its resource orientation and from GraphQL in its single-endpoint query flexibility versus REST's multiple resource-oriented endpoints.

How should I version a REST API?

Common strategies include URI versioning (/v1/) and header-based versioning. URI versioning is explicit and simpler for clients; header-based supports smoother evolution. Choose a strategy early and document migration steps.

What are best practices for securing REST APIs?

Use TLS, enforce authentication/authorization, rotate credentials, implement least privilege, validate inputs to prevent injection, and rate-limit to mitigate abuse. For machine-to-machine traffic, consider mTLS or OAuth 2.0 client credentials flow.

How do I monitor and troubleshoot APIs in production?

Collect metrics (latency, error rates), logs, and traces. Correlate these with business KPIs and use correlation IDs to trace individual requests. Automated synthetic monitoring can detect endpoint regressions before users are impacted.

When should I choose REST vs GraphQL or gRPC?

Choose REST for simplicity, widespread tooling, and resource-centric models. GraphQL fits use cases where clients need flexible queries and reduced round-trips. gRPC excels at low-latency service-to-service calls with strict typing. Evaluate client needs, network constraints, and ecosystem tooling.

Can AI-driven tooling improve API development and research?

AI tools can accelerate schema design, generate client SDKs, detect anomalous traffic patterns, and prioritize technical debt. Platforms that combine market and on-chain data with API access can help teams prototype integrations and analyze usage patterns—explore platforms like Token Metrics for AI-driven insights relevant to crypto data APIs.

Disclaimer

This article is for educational purposes only. It explains technical concepts related to REST APIs and operational best practices. It does not provide investment advice, recommendations, or endorsements. Evaluate tools and architectural choices independently based on your requirements and constraints.

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How REST APIs Power Modern Apps

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APIs are the connective tissue of modern software. Among architectural styles, the REST API remains a dominant approach for exposing resources over HTTP. This article explains what REST APIs are, the principles behind them, practical design patterns, security and testing considerations, and how AI-driven tools can streamline API development and analysis without prescribing decisions.

What a REST API Is and When to Use It

REST (Representational State Transfer) is an architectural style for distributed systems that emphasizes stateless interactions, resource-oriented URLs, and standard HTTP verbs (GET, POST, PUT, DELETE, etc.). A REST API exposes resources as endpoints that clients can interact with using these verbs and common data formats such as JSON.

REST APIs are well-suited for web and mobile backends, microservices communication, and public developer platforms because they leverage ubiquitous HTTP tooling and are language-agnostic. They are not a one-size-fits-all: scenarios with complex subscriptions, real-time streaming, or highly stateful workflows may benefit from complementary technologies (e.g., WebSockets, gRPC, GraphQL).

Core Principles and Architecture Patterns

Understanding core REST principles helps teams design predictable, maintainable interfaces. Key concepts include:

  • Resources and URIs: Model domain entities (users, orders, posts) as resources with clear, hierarchical URIs (e.g., /users/{id}/orders).
  • HTTP Methods & Semantics: Use methods to express intent—GET for retrieval, POST for creation, PUT/PATCH for updates, DELETE for removal.
  • Statelessness: Each request should contain all necessary context. Stateless servers scale better and simplify load balancing.
  • Representation: Return consistent representations (JSON, sometimes XML) and use standard status codes (200, 201, 400, 404, 500) for clarity.
  • HATEOAS (optional): Hypermedia links in responses can guide clients through available actions, though many APIs omit full HATEOAS due to complexity.

Architectural patterns to consider:

  1. Layered Services: Keep routing, business logic, and persistence separable for testability and reusability.
  2. API Gateway: Consolidate cross-cutting concerns like authentication, rate limiting, and logging at a gateway in front of microservices.
  3. Versioning: Use URI versioning (/v1/) or header-based approaches to evolve APIs without breaking existing clients.

Common Design Patterns and Best Practices

Practical design choices reduce friction for integrators and improve operational reliability. Consider these tactics:

  • Consistent Naming: Prefer nouns for resources and keep pluralization consistent (e.g., /users, /products).
  • Pagination & Filtering: Implement pagination for large collections (cursor or offset patterns) and provide robust query filtering with clear parameter semantics.
  • Idempotency: Make write operations idempotent where possible (PUT) or support idempotency keys for POST operations to safeguard against retries.
  • Error Handling: Return structured error objects with codes, messages, and request IDs to aid debugging.
  • Rate Limits & Quotas: Expose headers that indicate remaining quota and reset intervals so clients can adapt to limits gracefully.
  • API Contracts & Documentation: Maintain machine-readable contracts (OpenAPI/Swagger) and human-friendly docs that include examples and schema definitions.

Security-related best practices include enforcing TLS, validating inputs, and applying the principle of least privilege for resource access. Authentication options commonly used are API keys, OAuth 2.0, and JWTs; select an approach aligned with threat models and compliance needs.

Testing, Monitoring, and AI-Enhanced Tooling

Robust testing and observability are essential for reliable REST APIs. Typical testing layers include unit tests for business logic, integration tests for endpoints, and contract tests against OpenAPI specifications. Synthetic monitoring and instrumentation (tracing, metrics, structured logs) surface latency trends, error spikes, and usage patterns.

AI-driven tools and analytics can accelerate development and maintenance without replacing human judgment. Use cases include:

  • Automated Contract Generation: Tools can infer or validate OpenAPI schemas from traffic traces to identify undocumented endpoints.
  • Anomaly Detection: ML models can flag abnormal error rates or latency regressions earlier than manual review cycles.
  • Code Assistance: AI can suggest endpoint implementations, input validation logic, and test cases to speed iteration.

When integrating AI tools, validate outputs and maintain clear governance: model suggestions should be reviewed, and generated specs must be tested against realistic scenarios.

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What is the difference between REST and RESTful?

REST describes the architectural principles; "RESTful" is an adjective applied to services that follow those principles. In practice, developers use the terms interchangeably to describe HTTP-based APIs that model resources and use standard verbs.

How should I version a REST API?

Versioning strategies include URI versioning (e.g., /v1/resource), header-based versioning, or content negotiation. Choose a consistent approach and document migration paths. Semantic versioning for the API spec and clear deprecation schedules help clients adapt.

Which authentication method is recommended?

Selection depends on use case: API keys are simple for server-to-server calls; OAuth 2.0 provides delegated access for user-centric flows; JWTs enable stateless session tokens. Evaluate threat models, token lifecycle, and revocation needs before choosing.

How can I make my API more resilient?

Introduce retries with exponential backoff, circuit breakers, idempotency keys for write operations, and graceful degradation on dependent service failures. Also, ensure comprehensive monitoring and alerting so operators can react to incidents swiftly.

What tools should I use for documenting and testing?

OpenAPI/Swagger is the de facto standard for API contracts and interactive docs. Postman and Insomnia are popular for exploratory testing; CI-driven contract tests and integration test suites validate expected behavior. Use static analysis and linting (e.g., Spectral) to enforce consistency.

How do rate limits affect API design?

Rate limits protect backend resources and ensure fair usage. Design endpoints so that expensive operations are clearly documented, offer bulk or async endpoints for heavy workloads, and provide clear limit headers so clients can adapt request rates.

Disclaimer: This article is for educational and technical guidance only. It does not provide financial, legal, or investment advice. Implementations should be validated against project requirements, security standards, and applicable regulations.

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