Stablecoin

What Is A Stablecoin? 

Stablecoins are cryptocurrencies with a stable market value commonly pegged to a mainstream fiat currency like the U.S. dollar, a basket of fiat currencies, or any exchange-traded commodity like gold or any other precious metal. 

‍Stablecoins provide a welcome contrast to the overall price volatility in the cryptocurrency markets. This is because they are supported or collateralized by an asset or commodity and offer almost the same stability that fiat currencies provide. 

For example, stablecoins like Tether (USDT,) Paxos (PAX), and TrueUSD (TUSD), are all backed by the U.S. dollar on a 1:1 basis. Therefore, for every unit of these coins in circulation, $1 should be set aside and held in reserve by the issuing platform. 

Variety of Stablecoins 

The number of different stablecoins in circulation has increased significantly in recent years, and their quantity is also on the rise. Many crypto assets are also pegged to other fiat currencies like the euro, and some are pegged to other crypto assets. 

All the stablecoins can be grouped into four specific types: 

• Fiat-collateralized stablecoins, like USDT, TUSD, PAX, and many others.

• Commodity-collateralized stablecoins, like DigixGlobal (making it a “gold” token).

• Crypto-collateralized stablecoins, such as MakerDAO's Dai token.

• Non-collateralized stablecoins are based on a Seigniorage Shares system and algorithms to maintain their peg.

It seems that the business possibilities are countless with this new concept. Some stablecoin projects have pegged their digital assets to precious metals or other cryptocurrencies. Stablecoins are very easy to buy and are listed on most cryptocurrency exchanges, like Binance and Coinbase.

Stablecoins offer much welcome liquidity and safety from volatility for crypto investors and are becoming a central part of the digital assets space. While new stablecoin-focused regulations are always expected, they are still more tolerated by regulatory authorities worldwide due to their high compliance with financial and legislative requirements. 

Stablecoins are the groundbreakers for the much-awaited central bank digital currencies (CBDC) expected to drop.