Cryptocurrencies have been making a lot of headlines for about 12 years now, it has become an area where everyone is focused on making a profit and that is stablecoins. Stablecoins have grown in popularity among people searching for a less volatile manner to engage with the cryptocurrency markets, with a variety of stablecoins currently in circulation topping a price of over $135 billion. Trading Software can really make a difference in the trading game and can help you make better decisions while trading stablecoins.
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What is a stablecoin?
Stablecoins are crypto tokens that are often pegged to fiat money, like the U.s. dollar or Euro, making them typically exchangeable one-to-one for the relevant non-crypto. This functionality enables companies and customers to use cryptocurrency for regular payments despite fluctuating cryptocurrency values, maintaining the transferred items’ value. Yet, stablecoin-based blockchain payments are still quick, clear, and safe. Simply put: People can utilise cryptocurrencies sans being concerned about the severe price volatility that several cryptos have thanks to stablecoins.
Types of stablecoin
There are three primary categories of stablecoins: algorithmic, crypto-collateralized, and fiat-collateralized and each one offers a different strategy to maintain its value. As their names imply, stablecoins that are fiat-collateralized are backed by fiat currency reserves (or a basket of currencies), whereas stablecoins that are crypto-collateralized are backed by other cryptocurrencies. Algorithmic stablecoins don’t always reserve assets; instead, they preserve their value by using an algorithm to limit their supply.
The USDC (Dollar Coin) is an illustration of a stablecoin and has over 42.8 billion coins in circulation. Some cryptocurrency companies offer more than one stable coin because they can be pegged to any fiat currency. The largest is considered Tether, as its currencies are tied to the US Dollar (USDT) and the Euro (EURT) respectively. The following is a list of stablecoins by market capitalization:
- Tether (USDT)
- USDC (USD Coin)
- BUSD (Binance USD)
- DAI (Dai)
- TUSD (TrueUSD)
The history of Non-collateralized or seigniorage-style stablecoins
That type of stablecoin is organised to maintain price stability without any underlying assets. These coins are dependent on certain mechanisms and market pressure to maintain the stability of the coins with time. However, these coins are used to generate decentralised systems which are not restricted by some of the traditional financial institutions. There it is the responsibility of the stablecoin to design these algorithms to make sure that they can stabilise the coin’s value effectively over time.
Benefits of stablecoin
Stablecoins have a nature of their own that can yield additional benefits for governments and businesses, consumers, and businesses alike because:
- Stablecoins enable faster and lower payouts: With stablecoins, cross-border payments are simple to make, making it simpler for vendors to sell to clients around the world in a globalised market. These payments are more appealing as a method for small enterprises to receive payments because they are faster and more affordable.
- Several stablecoins enable micropayments: Micropayments, in which users pay in small amounts for access to internet content, are now unaffordable in regular banking. Dante Disparte, CSO of Circle, said to the Associated Press. Stablecoins are particularly appealing to cryptocurrency investors at the moment because all cryptocurrencies’ prices are unstable. Stablecoins provide a “haven” in this regard for anyone who wants to stay away from market instability. Moreover, stablecoins can be “staked,” protecting owners against volatility in the value of cryptocurrencies while enabling dividends on holdings.
Potential drawbacks
Stablecoins have perils, as with any breakthrough technology, especially while we wait for governments and regulatory agencies to issue clear legislative guidelines on how to use them in day-to-day payments. appealing given their attractiveness as a more stable substitute to its crypto competitors. We must also take counterparty risk into account if any stablecoin reserves are placed with a bank or other third party.
