When we think of cryptocurrency, we don’t usually think of it being stable because its value can change a lot. This makes it hard to use in everyday life.
That’s why we need something that is not controlled by a single authority, but also doesn’t change in value too much.
Stablecoins are created to solve this problem. They aim to have a consistent value, so investors can have a safe place to put their money without worrying about big price changes like with Bitcoin and other cryptocurrencies.
They are tied to a real asset, usually the US dollar or gold, to make their value stable.
Tether (USDT) is the first and most valuable Stablecoin, with a market cap of $72.5 billion.
There are over 200 stablecoins in use at this juncture, with a total of $245 billion worth traded each day.
However, in 2022, the Stablecoin market lost $28 billion in value.
Hey! Are you curious about the mysterious world of Stablecoins?
The value of these cryptocurrencies are technically stable, so there is no point in distrusting their credibility.
But, what are they controversial?
Join us on a journey through the history of Stablecoins as we explore their importance and the different types available on the market.
Get ready to unravel the secrets of Stablecoins!
Stablecoin: An Extensive History of the Popular Digital Asset
You are going to dive deep into a fascinating topic. Before going deep, it’s important to know its history.
You already know what Stablecoin is.
The concept of Stablecoin was introduced by two popular players in the blockchain industry, Charles Hoskinson and Dan Larimer. They issued the first-ever Stablecoin as a token in 2014, i.e., BitUSD on the BitShare blockchain.
Notably, the coin was backed by the primary BTS token BitShares (BTS) as well as secured by a variety of different cryptos and all secured in a small contract to serve as collateral.
They are the best of both world security and decentralization of cryptocurrencies, while also providing fiat currencies stability.
In short, what the new concept provides is a solution to the problem of the price fluctuation of cryptocurrencies by eliminating concerns about the volatility in cryptocurrency prices.
Stablecoin is at present a very popular concept. Last year, prominent Asian economic power Japan passed a crucial law clarifying the legal status and thus credibility of Stablecoins.
Have you ever wondered how Stablecoins have gained widespread popularity?
Hey! Let’s take a breather and dive into a fundamental topic: Blockchain. Click here!
Popularity of Stablecoin: Reasons and Adoption Rates
As discussed earlier, Stablecoins have emerged as a solution to the key issue of mainstream cryptocurrencies.
For this reason, in the application aspect, they perform unusually better than many popular cryptocurrencies.
The following points highlight the significance of Stablecoins in real-world applications.
- With Stablecoins, users can send money to their friends abroad using only one cryptocurrency wallet instead of multiple foreign bank accounts.
- Stablecoins allow for direct peer-to-peer digital transfer without the need for intermediaries, resulting in lower fees, faster transfer times and enhanced privacy.
- Stablecoins play a significant role in Decentralised Finance (DeFi) as building blocks.
- Tether (USDT) is the world’s most widely traded cryptocurrency asset, primarily used for transferring money via blockchain.
- Stablecoins are a convenient way to convert fiat currency into cryptocurrency.
- Traders can switch to Stablecoins to safeguard their gains once they have closed a position.
Notably, with 24/7 accessibility, Stablecoins like Tether offer more convenience than cash.
Moreover, stablecoins are compatible with smart contracts, which are electronic contracts that execute automatically when certain conditions are met.
Their stability helps prevent disagreements that may arise when dealing with volatile cryptocurrencies, ultimately building trust among investors.
Having gained adequate knowledge about the popularity of Stablecoins, it’s time to delve deeper into its operational mechanics.
You are extremely excited, aren’t you?
Time for another quick break! Do you know anything about Cryptocurrency Wallets? You must try to acquire knowledge about it. Let’s use this break wisely. Click here!
Stablecoin: A Comprehensive Guide to its Operations
You already have a clear understanding about Stablecoin. You have successfully explored its history and the reasons that made the concept popular across the world.
In this section, you are going to learn how this concept really works.
As per our previous discussions, the stable nature or non-volatile nature of Stablecoins helps to reduce the risk of it going up and down in value quickly.
People in countries with high inflation can use Stablecoins to save their money in a more stable currency.
Stablecoins can also be useful for international money transfers, as they are quick, and cheap, and don’t require multiple exchanges with banks and middlemen.
Investors like Stablecoins for they have the benefits of cryptocurrency, like fast transfer and low fees, but without worrying about losing to volatility.
Wait a minute!
Do you know that there are various types of stablecoins being used in the crypto world, each with their own specific purposes?
Yes, please don’t give that surprise face again!
If you’re curious to learn more, we’ve put together a detailed list of all the different stablecoins and their intended uses.
Prepare yourself for an exciting exploration!
Hey! Pause for a moment! Let us take you for a quick tour to explore the topic of Crypto Exchanges. Click here!
Types of Stablecoin: See Which One is Right for Your Purpose
Certainly, with so many unique types serving distinct purposes, you’ll be amazed by the diverse landscape of stablecoins in the world of cryptocurrency.
So, let’s explore them one by one!
These coins have value backed by certain collaterals. There are three types of collateralised Stablecoins: fiat-backed, asset-backed and crypto-backed.
Fiat-backed stablecoins: are backed by fiat currency like the US Dollar, with examples such as Tether, PAXOS Standard and USD coin.
Asset-backed stablecoins: are backed by tangible assets like gold, silver, real estate or oil.
Crypto-backed stablecoins: are backed by cryptocurrency, and have protocols in place to protect their value from fluctuation. The prime example is DAI token, a stablecoin, supported by Ether, and tied to the US Dollar value.
These coins do not depend on a central entity or collateral. Instead, they rely on a formula derived from demand and supply.
Algorithmic stablecoins: maintain stablecoin prices by controlling their supply through an algorithm, similar to how central banks maintain the currency’s stability.
We know what is the prime question that is bothering your mind at this moment, ‘are all types of Stablecoins truly stable’.
Through a simple example, we can delve into this question and simplify it for easy understanding.
Wait! Are Altcoins and Stablecoins the same? Take a break and join us on a thrilling exploration. Click here to learn everything one needs to know about Altcoins!
Stablecoins and Volatility: What Every Crypto Investor Needs To Know
Understanding the difference between Stablecoins and other cryptocurrencies is crucial for investors.
Stablecoins are less volatile than other cryptocurrencies.
Let’s take an example.
In 2010, someone brought a pizza for 10,000 BTC, which was worth around $30 at the time. But if someone were to make that same purchase in 2018 with the same amount of BTC, it would be worth a staggering $82 million.
The example is enough to explain the volatile nature of cryptocurrencies like Bitcoin.
Unlike the unstable cryptocurrencies, which can experience wild price fluctuations, stablecoins provide more stability and security. They are also more transparent, accessible and cost-effective.
Stablecoins were initially used by traders and investors as a backup plan to protect their money during market crashes, as they allowed for a secure and stable decentralised system without being impacted by extreme volatility.
You have reached an important juncture. You have learned the reasons which keep Stablecoins unique.
It’s time to dive into the dissimilarities between Stablecoins and Altcoins.
It will be a chance to understand how they impact each other.
Wait! What is Bitcoin? Every crypto enthusiast should have read this article at least once. Take a break. Click here to read it.
Stablecoins Vs Altcoins: Understanding the Key Differences
Down below we’ve listed some of the key differences between Stablecoin and Altcoin, you should take a closer look into it.
|Options for Buying
|To purchase stablecoins on the spot it is necessary to have an account using a digital wallet or cryptocurrency exchange.
|The best options for purchasing altcoins are Coinbase as well as Gemini.
|Like fiat currency or assets such as precious metals
|Based on the blockchain protocol.
|Exchange medium, Unit of account, and storage of value
|Varies. For instance, Bitcoin is considered to be the store of value, whereas other cryptocurrencies may be used as an exchange medium
|Reserved by assets or by algorithms
|It is not supported by any metal or physical commodity
|The majority are controlled by a central organisation
|The majority of cryptocurrency aims to be decentralised
|The most stable stablecoins you can mine include Tether, Binance USD, Terra USD, and Dai.
|The mining options for altcoins include ECOS, Vertcoin, Grin, and ZCash.
|Returns on Investment (ROI)
|Their interest rates range from 5 to 20%. Because of this, their ROI is less.
|They could yield huge returns since they are able to capture a significant market.
As you know, the popularity of Stablecoins is increasing day by day.
Creating a Stablecoin can seem like a daunting task, but with the right guidance and knowledge, it can be a simple process.
In the next part, you are going to explore this process in depth.
Buckle up for an exciting adventure!
A Complete Tutorial on How to Create a Stablecoin
Here you will get to explore the steps involved in creating a Stablecoin in detail.
Step 1: Determine the type of stablecoin to create. As you know, there are two major kinds: collateralised and non-collateralised. Algorithmic stablecoins are recommended for stability over the long term, while collateralised stablecoins are recommended for stability in the short term.
Step 2: Choose the blockchain-based platform and technologies necessary to construct the stablecoin. Ethereum used to be the only platform for stablecoins, but new players like Tron and EOS have entered the market. Once the platform and technology have been selected, it’s time to move on to the next step.
Step 3: Consider the possibility of maintaining liquidity. Without liquidity, a stablecoin may not serve its intended purpose. To ensure good liquidity, there are several actions to take. These include incorporating an automated monitoring system to provide daily exchange rate and index rates, protecting against excessive demand by fixing the face value of Stablecoins, allowing users to sell to redeem Stablecoins at current face value with minimal transaction costs, and dividing transaction fee income to increase liquidity.
Step 4: Design and develop the token. After all other steps have been taken, it’s time to create the desired Stablecoin token. For algorithmic Stablecoins, it’s important to transfer their value into decentralised currency to maintain stability.
You have mastered the art of creating a Stablecoin.
The big question now is ‘how will we launch it’.
Hey! You should not miss this article, which covers everything you need to know about Ethereum. Click here!
Expert Tips for Launching Your Own Stablecoin
To launch a Stablecoin, the following steps can be taken:
- First, create a Test Net if Ethereum is the chosen platform. There are several test webs available on the market.
- Allow various groups of users to test the new product using the test network and collect feedback and suggestions for improvement.
- Address any issues that may have been identified during the beta testing phase.
- Ensure that the required reserves of the asset (e.g., USA) are established, particularly for tokens based on assets.
- After all the above-mentioned steps have been completed, the token can be launched on the main internet.
You have reached the final stage of this discussion.
From what you have read so far, can you predict the future of Stablecoins?
Let’s try to make a sensible prediction.
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The Future of Stablecoins
The goal of a stablecoin is more than merely a contract for financial services.
Since Stablecoins are stable assets they can open up new avenues to the mainstream use of digital assets in everyday life.
Countries are exploring Central Bank Digital Currency to improve financial inclusion and lower transaction costs.
However, Stablecoins have risks, so regulators are looking into ways to secure them.
The Biden administration plans to regulate Stablecoin issuers like banks do.
As Stablecoins become more trusted, they could change the way the financial sector uses digital assets, making them a great opportunity for altering the entire payment system.
The primary objective of the cryptocurrency sector has been to create a digital asset that is both more stable and liquid. Stablecoin is widely considered as the ultimate goal of the cryptocurrency market, as it can facilitate seamless transactions among parties who require conversion between cryptocurrencies and fiat currencies. Nonetheless, it is imperative that stablecoin users remain cognizant of the potential risks associated with its use.
Stabecoins can be a great option for investors looking for more stable cryptocurrency. They provide many benefits for investors, including providing a reliable way to earn passive earnings, and an investment in value.
In the past, US dollar stablecoins such as USDC have proved resilient during market turmoil, have remained at their pegs, and even temporarily changed by one cent.
Centralised Stablecoins like USDT (Tether) and USDC are able to earn money by process of lending and investing in the same way as traditional banks.
There are about 200 Stablecoins available today. A few of the more well-known examples are Tether (USDT), USDC, USD, Dai, etc.