Stablecoin is a stable digital currency at a steady price. When traders introduced bitcoin and similar digital currencies as one of their payment methods, they quickly faced the fundamental problem of price fluctuations. Stablecoin is a solution to deal with market fluctuations. The price of most digital currencies is determined by the market. The supply and demand of buyers and sellers determine the price of exchanging the cryptocurrencies. In contrast, Stablecoins are looking for a stable price.
What is stablecoin
Stablecoin is a new generation of blockchain-based currencies whose prices are fixed rather than fluctuating based on traders’ speculations and depend on real-world fixed assets from commodities to common currencies.
One of the common arguments with Stablecoins is that they are resistant to price fluctuations. You can protect yourself against market fluctuations by holding Stablecoins instead of cryptocurrencies such as bitcoin or ethereum.
For example, if bitcoin is priced at $ 8000 and you trade a bitcoin with a US dollar-stabilized Stablecoin, then you have 8000 units of stablecoins. If the price of bitcoin reaches $ 7000 in one week, you still have $ 8000 worth of Stablecoin, and you can convert them to bitcoin anytime you want, and save $ 1000 of your capital.
Introducing Different Types of Stablecoins
Stablecoin can be broadly divided into three categories:
To issue Fiat-backed Stablecoins, a Fiat currency as a reservation has been introduced and maintained. Other types of collaterals could include precious metals such as gold or silver as well as commodities such as petroleum, but most Fiat-backed Stablecoins currently use dollar reserves. These reserves are held independently by a trusted third party and are regularly evaluated for compliance. Tether (USDT) and TrueUSD are the most popular Stablecoins that have equal value as a US dollar and are backed by dollar deposits.
Crypto-backed Stablecoins are supported by other encrypted currencies. Since encrypted currency reserves may also be susceptible to high volatility, such Stablecoins have high collateral, meaning that more of the encrypted currency tokens are held as reserves for issuing fewer Stablecoins.
For example, $ 2000 Bitcoin may be used as a reserve for the issue of $ 1000 worth of Stablecoins backed by crypto collateral, which holds up to 50% of reserves currency fluctuations (bitcoin). More inspections and monitoring adds to price stability.
Non-collateralized Stablecoin does not use any reserves, but it does include mechanisms such as the central bank that are reasonable for preserving the price. For example, dollar-based basecoins use an agreed mechanism to increase or decrease the supply of tokens based on the need. Such actions are similar to printing banknotes to preserve Fiat currency value. This can be achieved by running a smart contract on a decentralized platform that can run automatically.
The most famous Stablecoins on the market | Global Stablecoins
Tether is the first Stablecoin on marketplace developed in the year 2015. This digital currency is supported by Fiat currency one by one (each tether equivalent to one dollar). But over the past year, there has been a lot of talk and arguments about Tether backing.
This ERC20-based Stablecoin is supported in US dollars. At first, it may look like Tether, but unlike Tether, it is a traditional-supported, legally protected currency, and is fully transparent and approved by third-party endorsement.
This Stablecoin managed by people who have a track record of working with Google, PwC, and UC in their business history. The company aims to bring more stability to the world of digital currency fluctuations. TrueUSD is ranked 34 among the digital currencies, but its adoption is growing at a decent pace.
It is an independent, decentralized organization seeking to create a new type of Stablecoin. The organization began operations in the year 2017 and introduced its Stablecoin called DAI and unlike dollar-supported Tether, is supported by the Ethereum cryptocurrency
It is backed by Circle and coinbase. This is a Stablecoin which has quickly gained a foothold in the market because of his supporters. It has partnered with popular crypto institutions and exchanges such as OKEx, Ledger, Kyber, and DigiFinex. The USDC Stablecoin is based on the ERC20 protocol.
Gemini Dollar (GUSD)
Created by the Winklevoss brothers, renowned Bitcoin currency investors and Gemini currency owners. The Gemini Dollar, listed at nineteen currency exchanges since its launch, is currently in the top 79 digital currencies. This token has great potential not only because of its famous founders but also because it complies with several different standards.
This Stablecoin is different from other Stablecoins on this list of stablecoins because it is only available in the Houbi Exchange and acts as the base trading pair among the four Stablecoins Houbi Exchanges support.
Most of these Stablecoins have the potential to become a serious competitor for Tether. While no one can predict with certainty whether another billion dollars Stablecoin will raise.
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