Crypto assets such as bitcoin (BTC) and ether (eth) are one of the advantages of being available to anyone in the world because there is no intermediary when making payments. However, one of the drawbacks of these crypto-assets is that prices are unpredictable with intense value fluctuations. Stablecoins are crypto assets with lesser price fluctuations. Visit at: immediate-edge.pl
What are stablecoins?
Put a token of dollar bills on one side and crypto-assets on the other, and a balanced bottle defines stablecoins are crypto-assets that peg “stable” reserve assets such as US dollars and gold. It is designed to reduce volatility compared to non-pegging crypto assets such as bitcoin. Stablecoins bridge the world of crypto assets with the world of everyday fiat currencies. Because the price of stablecoins is pegged to reserve assets, this has dramatically reduced volatility compared to bitcoin and other cryptocurrencies and has evolved into a form of digital money suitable for everything from day-to-day commerce to inter-exchange entry and exit.
Types of stablecoins
Stablecoins have various types, such as centralized, gold backup, and algorithmic. Let’s introduce it in order.
- Centralized stablecoin: Centralized stablecoins are backed by traditional currency but is provided as a digital asset.
- Tether（usdt）
Tether is the current largest stablecoin by market capitalization, created by Tether Limited. It uses the bitcoin and Ethereum blockchain. The unit is USDT, which is fixed at 1USDT = USD 1. The stablecoin has a trading volume that is close to bitcoin, with a 24-hour trading volume exceeding $70 billion.
However, there are some allegations about Tether limited. For tether to be valuable as a stablecoin, Tether limited must hold the same amount of USD as the tether’s market capitalization.
- USD coin（USD）
The stablecoin was developed by crypto-asset exchanges coinbase and the circle is a USD coin. USD coin, like tether, is fixed at 1USDC = USD 1.
These stablecoins are often used mainly in the field of decentralized finance (DeFi), and they are gaining momentum year by year because they are more transparent than tether.
- Gold backup stablecoin
Many stablecoins are pegged to fiat currencies such as the US dollar, but there was anxiety about these fiat currencies, so stablecoins that peg on other assets has also been developed. The representative is gold.
- Cache gold
The cache is one of the most popular brands of this type, with the price of 1g of pure gold stored all over the world and the stable coins that are pegged. The cache can be easily exchanged for physical gold at any time, the same as sending 1g of gold per cache.
There are also other gold-backed stablecoins such as tether gold (XAUT) and PAX gold (PAXG), which are pegged with 1 troy ounce of gold (about 31 grams) instead of 1g of gold. The difference here is that the minimum exchange amount is higher than the cache.
- Algorithmic stablecoins
- Terra（LUNA）
Terra is a decentralized algorithmic stablecoin. It uses complex algorithms to maintain price stability without going through third parties. To do this, you need a reserve called on-chain. By keeping the on-chain in a smart contract and automatically balancing supply and demand, it reduces the possibility of traders manipulating prices accidentally or intentionally.
- Ampleforth（AMPL）
Ampleforth is a similar system to terra. The unit is AMPL. Instead of pegging AMPL for USD 1, a process called “rebasing” is used to automatically adjust the yield of Ampleforth as the supply and demand balance changes. Rebase is proportional to all wallets, so AMPL holders can always maintain their share (their share) within the AMPL network.
Why choose stablecoins instead of bitcoin?
As we have mentioned many times, the biggest attraction of stablecoins is the stabilization of prices by being pegged in fiat currency and other commodities. From an investor’s point of view, it is a strength to be able to sell your crypto assets basically for 1 token = $1 at any time.
How does it work?
Stablecoins are tokens of crypto assets, all of which operate on the blockchain around Ethereum, bitcoin, etc. Stablecoins also need to support valuable assets that everyone recognizes as credit from a highly trusted lender to achieve stability. For example, USD coins (USDCs) are designed to maintain the closest possible value to $1, backed by physical dollars stored in financial institutions. And monthly audits clarify the use of all of these dollars and maintain a one-to-one percentage.
InConclusion:
Stablecoins are Designed to provide price stability and enable “value storage” that was not found in crypto assets such as bitcoin. Stablecoins will become popular as one of the payment methods in the future. It will further improve its practicality. However, stablecoins are not greatly used for investment, they are used for digital transactions and convert fiat currency or commodities. But, other cryptos like bitcoin and ether are good for profit gain by investment. For this instance, Bitcoin Era is an exchange that has a simple interface for both browsers and apps and is easy for beginners to use.