These two technologies have advanced very fast over the past decade. Both are transitional agents that can help the traditional financial industry and various other sectors. Some crypto assets, which dominate, can even be considered as alternatives to valuable metals like gold.
One of their benefits is the ability to be purchased and sold separately from any other asset class. This also applies to some stablecoins. But, popular crypto assets will experience high market volatility. The market fluctuates rapidly, and you can’t predict when it will rise or fall.
Stablecoin has been created to help solve that problem. So what is a stability coin? What does the future look like for stable coins? This crypto asset is better than all other types. This is the explanation.
What are stablecoins, exactly?
Similar to its title, translated into English as “Stable Coin,” the stable coin type of crypto asset does not have a volatile price like other crypto assets. They are backed by fiat currency, which is known as stable investments.
Stablecoin is an integrated traditional banking system that uses blockchain technology. This crypto asset was developed to give it more advantages than just price stability. For example, Stablecoin can be used to maintain liquidity, and transactions can be transparent.
Some traders use Stablecoins to facilitate financial transactions. This impacts the ease of transactions across different payment platforms.
After learning about stable coins, let’s now learn more about the three types. Here’s a listing.
1. Crypto Assets Backed
Stablecoin (the first type) is backed with other crypto assets. These crypto-assets support stablecoins in general. They include decentralized crypto assets like Bitcoin, Ethereum, etc.
The value of this cryptocurrency asset is volatile so that stablecoins can be used in similar situations. This type of stablecoin is less popular than the one that’s supported by fiat currency.
2. Algorithm supported
Stablecoin (which is supported with an algorithm) is the second and most challenging type. It doesn’t have any supporting assets. Instead, it uses smart contracts and algorithms that adjust the stock of Stablecoin assets for market stability.
The algorithm must react to market movements correctly to ensure that movements are not manipulated.
3. Fiat backing
Currency Stablecoin’s most popular type is Stablecoin. It is backed up by fiat currency. Fiat currencies have already collateralized this type like US dollars. This type is the commonest and the first type to evolve from stablecoins to be the most popular.
- RupiahToken – (IDRT), is a RupiahToken stablecoin. It’s a rupiah cryptocurrency that uses the Ethereum blockchain and is 100% guaranteed to be 1:1 with real Rupiah. IDRT digitizes the Rupiah by generating tokens equaling the amount Rupiah received by the user and sending the token to the Ethereum wallet.
- Tether USDT (USDT: Tether, also known as USDT, is the pioneer stablecoin and one of the most sought after. USDT has a 1:1 guarantee. USDT is currently the most traded stablecoin, according to market cap.
- USD Coin (USDC), also known as USD Coin, is a stable coin created in 2018 and co-regulated with Circle & Coinbase. USDC will always match USDT’s USD value. It is the 2nd biggest stable coin market cap.
As long as the currency’s worth does not fluctuate, the stability of the country’s economy stablecoins will be assured. This means even if the entire crypto-economy collapses and Bitcoin plummets to $0, fiat-backed stability coins are not affected.
Stablecoins Are a Bright Future
Stablecoins have attracted a lot of attention due to the price stability they offer. Stablecoins, used for trading as the base currency, are usually on DeFi-based bases with high-interest rates. This is possible with stable coin lending that is available in crypto-asset markets.
The DeFi bases use distributed ledger software (DLT) and distributed ledger technologies like blockchains that don’t have intermediaries. These platforms implement decentralization in their regulations. They apply to all investors.
However, the truth is that decentralized crypto assets such as Bitcoin and Ethereum are not yet been adopted by citizens. However, stable coins supported by fiat currency have greater potential to be adopted and accepted by the wider community.
Stablecoins, a digital version of fiat currencies, can be accepted by the public. However, it is uncertain whether stable coins will completely replace fiat currencies. This is because fiat currencies still play an important role in Stablecoin’s turnover.
Everything can go wrong. Fiat-backed stabilizecoins are centralized, meaning that they are driven solely by one substance. This means that it is difficult to be certain that these substances are backing their stablecoins by fiat.
Tether hasn’t provided any open audit of its reserves. This means that some believe Tether only holds a fraction or USD of the USD claimed to be its assets. Tether’s October 2018 market cap decreased by more than $1 million due to this information.
This is to resolve the issue of confidence. The stable coin needs to be subjected regularly to audits by third parties. This will help to ensure their trustworthiness and help them keep their track record good.
A stablecoin, a type of cryptocurrency, is programmed to have the same value as an asset. It could be the US dollar or other commodities like gold. Notable stablecoins to mention are USD Coin USDC and Tether USDT. These currencies can be used 1:1 with the US currency. One USDC or USDT is the same as one US dollar.
Stablecoins, while it is impossible to predict the future in the ever-changing blockchain universe, can help maximize cryptocurrency’s potential.