What Are Stablecoins?
The term stablecoins is used to describe cryptocurrencies which are meant to hold a stable value throughout the years. Unlike different types of cryptocurrencies which are volatile, stablecoins aim to be valued in the same way with fiat currency.
Stablecoins came into existence with high hopes of providing balance between the traditional fiat and the emerging cryptocurrencies which are being used for transactions as well as currencies. As new crypto coins are introduced once in a while, stablecoins exist to stand in the middle of progressing cryptocurrency technology.
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Stablecoins and cryptocurrencies
The terms stablecoins and cryptocurrencies are always intertwined with one another. Technically speaking, a cryptocurrency pertains to a digital asset which can work as a medium of exchange or as a form of investment. Different forms of cryptocurrency, especially Bitcoin and Ethereum, may be considered as an investment even though the rate of its price may not be that consistent.
Stablecoins, on the other hand, is a cryptocurrency which is pegged to stable and non-volatile assets such as the US Dollar (USD). Unlike cryptocurrencies, stablecoins aren’t decentralized, free, and volatile.
Cryptocurrency exchange with stablecoins
As stablecoins may be used to deal with both fiat and cryptocurrencies, it works as a stable mediator between the two. Whereas fiat may be directly used with some forms of cryptocurrency, stablecoins can. This works with the help of a process more commonly known as a cryptocurrency exchange.
One of the most popular stablecoins is Tether which has a value that is equivalent to $1. Using it as an example to explain cryptocurrency exchange, Tether may be easily paid with fiat unlike other cryptocurrencies who don’t share a 1:1 ratio.
Once the money is in Tether form, then it may be used to transact with other forms of cryptocurrency directly. In this case, Tether may be converted to Bitcoin based on its value. Should Bitcoin’s value change and you wish to convert it to let’s say, Ethereum, then you may do so by converting the value back to Tether and then converting it to Ethereum.
This way, the risk of putting your money in the wrong form of cryptocurrency is lowered. Why? This is because of the fact that you can easily play with the value of your money with the assurance that you can move it easily. Aside from that, funds are also able to move faster here aside from the fact that they are free.
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The impact of stablecoins
Stablecoins proved to be popular after cryptocurrencies were seen to have their values fluctuate from time to time. With that, people looked for something which can give them more assurance, something that has a stable value.
As the value of stablecoins remains to be similar to fiat, it doesn’t become an ideal form of exchange, rather, it works better as a utility coin which can help traders.
Also, stablecoins aim to maintain their value and prove to their users that they are indeed worth their worth. Some of those which are checked by the users are the collaterals of each stablecoin if it is based on fiat, assets, or other cryptocurrencies.
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Popular stablecoins
As earlier said, Tether may be said to be the most popular form of stablecoin. Aside from that, there are also several other popular forms of stablecoin which are well-known in the market. Let us take a look at the following popular stablecoins.
Tether (USDT)
Tether ranks as one of the top cryptocurrencies when it comes to market capitalization. Aside from being the most popular form of stablecoin, it also happens to be the most popular one because of its impressive market cap.
Despite controversies and some accusations, Tether has maintained its spot as a credible form of stablecoin in the market. To date, Tether is indeed used to be a bridge between fiat and cryptocurrencies, like what was stated in the earlier example about cryptocurrency exchange.
To learn more about Tether and its history, click here
TrueUSD (TUSD)
True USD is also known to be one of the most reliable and proven stablecoins. Like Tether, TUSD is also fiat-collateralized, meaning that the value of its assets is equivalent to the value of a certain fiat. In this case, the US dollar.
TUSD is also proudly verified by third party sources which publish their reports regularly with the help of Twitter. As the reports are published on social media, people see it to be more credible because of its transparency.
Gemini USD (GUSD)
Gemini USD is another fiat-collateralized stablecoin which may be used in different transactions. Like the ones aforementioned, this GUSD also has a ratio of 1:1 with the USD. Its purpose, as what they have declared is to bring the value of the US Dollar into the modern digital era. In fact, they are the world’s first regulated stablecoin.
USD Coin (USDC)
As the name suggests, this stablecoin’s ratio with the USD is also 1:1. The USDC is made by the CENTRE consortium which was co-founded by Coinbase and Circle. The USDC may easily be moved anywhere in the world for very little cost as it also runs on the same network with Ethereum.
Dai (DAI)
Unlike the ones aforementioned, Dai is a stablecoin which is crypto-collateralized. This means that its value depends on a form of cryptocurrency which supports it. In this case, Dai has its collateral backed up by the collateral of the Maker platform.
With that, Dai runs on Ethereum despite aiming to also have a value which is equivalent to $1. In this stablecoin, its users may help create and destroy the tokens as the transactions are more transparent.
These are just some of the basic information which you need to know about stablecoins, especially if you’re just starting with them.
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Words: Carrie Gray
Image: PA