It is not a new idea for us that cryptocurrency is volatile. Perhaps, at some point, you also have wondered how we can make it nonvolatile. Creating such a coin will make an impact on the industry. Not to spoil it, but it is already existing. Let us talk about stablecoins in this article.
A stable coin is a cryptocurrency linked to or backed by a stable asset, such as the US dollar, gold, or other commodities. This coin exists to lessen a coin’s volatility. Because almost all cryptocurrencies are volatile, using them as a medium of trade is challenging.
For example, suppose your employer pays you in Bitcoin, and your salary is worth USD 5,000. You did not immediately convert it to cash after receiving it. Then, all of a sudden, the value of bitcoin plunged. Your anticipated USD 5,000 becomes USD 3,500. And it is this problem that stablecoin seeks to fix.
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What is a Stablecoin?
A stablecoin, according to Investopedia, is a type of cryptocurrency that aims to provide price stability and is backed by a reserve asset. Stablecoins have gained popularity since they try to combine the best of both worlds: the rapid processing and security or privacy of cryptocurrency payments, as well as the volatility-free and stable prices of fiat currencies.
The benefit of stablecoin is that it has the characteristics of bitcoin whilst pegged to a stable asset. It’s decentralised, untrustworthy, and low-cost to use. It, as well as its stability, cannot be controlled by a single corporation.
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Above all, a stablecoin is the most widely used cryptocurrency among traders. When they suspect that the value of the coins they own may decline, they will exchange them for more stable ones less vulnerable to volatility.
What Types of Stablecoins Are There?
Fiat, commodity, cryptocurrency, and non-collateralized stablecoins are the four main types of stablecoins. Let us begin with Fiat stablecoins. These coins are in conjunction with standard fiat currencies like the US dollar. It has a 1: 1 ratio, which means that one coin equals one dollar or any other currency.
The majority of fiat-backed stablecoins get linked to the US dollar. USDT (Tether), PAX (Paxos), TrueUSD (TrustToken), and GUSD (Gemini Dolar) are some of the most popular fiat stablecoins on the market. You’ll find Facebook’s Libra (due out in 2020) and Union Bank’s PHX, just published in this category.
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The next one is commodity stablecoins. Most people are familiar with fiat stablecoins, but there is also a commodities stablecoin. Physical assets serve as the fund for commodity-backed stablecoins.
Oil, precious metals such as gold and silver, and grain are examples of commodities. Gcoin (G-coin) and DGX are two examples of commodity-backed stablecoins (digix). The only oil-backed cryptocurrency is Petro, which is in Venezuela.
The crypto-backed stablecoin is another sort of stablecoin. Because it’s coupled with a cryptocurrency like bitcoin or Ethereum, it’s dubbed crypto stablecoins. Typically, crypto-backed stablecoins couple with another cryptocurrency.
Because of the volatility of cryptocurrencies, most crypto-backed stablecoins are mixed crypto. It aims to mitigate the danger of having only one cryptocurrency. The DAI (maker dao), BitUSD (Bitshares), and SUSD are all examples of this (Synthetix)
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Last but not least, there are non-collateralized stablecoins. No asset backs it up. It only utilises one algorithm to adjust supply and demand, ensuring that the coin remains stable. The Carbon USD is a good example of a non-collateralized stablecoin (Carbon).
To Sum It Up
Many more stablecoins may be released soon. Large corporations and the government are both aware of this. China is said to have developed its cryptocurrency, likely to be a stablecoin. Other countries are likely to follow in their footsteps in the not-too-distant future. And give him his solid cryptocurrency coin.
What do you think about stablecoins? Do you find it awesome? Or does it make you feel off towards the conventional crypto? If you are looking for that standard crypto, you can go to trading platforms and choose from the crypto they offer.
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