What are Stablecoins?
What are Stablecoins?
The most essential difference that stablecoin cryptocurrencies have to offer is as per the name suggested — stable. The cryptocurrency market is highly volatile. If one has to diversify the portfolio and store some funds into assets which excludes volatility, stablecoins are an excellent option. Anyone with basic trading knowledge, be it a crypto trader or retail trader can trade in stablecoins without worrying about the extreme fluctuation in prices.
Stablecoins are generally pegged down to FIAT currencies or commodities. FIAT currencies like — USD or Euro and Commodities like gold.
Types of Stablecoins:
Centralized Stablecoins :
Centralized stablecoins are launched and governed by central organizations which could be anything like government, banks, or companies. These coins are backed by FIAT currencies like USD or Euro which are stored in bank accounts.
Tether (USDT), USD coin (USDC), Gemini USD (GUSD) are some popular examples of centralised stable coins.
Stablecoins which are backed by commodities like real estate, gold, silver, and other precious metals For example, Kitco Gold is backed by the company’s gold reserves, and the token itself is based on the Ethereum-backed ERC-20 blockchain ecosystem
Decentralized Stablecoins :
These stablecoins are governed by the consensus of users who are part of the network instead of any central operator. These are very new types of stablecoins.
These stablecoins are backed by crypto.
As we know that cryptocurrencies are volatile, these stablecoins must be overcompensated to be collateralized. For example, MakerDAO’s Dai is a crypto-backed stablecoin. Here users can lock up a certain amount of cryptocurrencies, such as Ethers, as collateral for borrowing DAI, which is pegged to the US Dollar. You’ll need to deposit $1,000 in ETH to buy $500 worth of DAI stablecoins.
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Decentralized Algorithmic Stablecoins :
These are relatively very new concepts that do not have any primarily backed system.
These stablecoins in which prices, token numbers, and other variables are manipulated with the help of special algorithms, software, and code in order to better manage supply and demand.
This strategy allows the company to maintain the reserve peg in the event of price fluctuations.
How to earn with Stablecoins:
Stablecoins have very much importance for Defi .?Decentralized Finance?provides an alternative to the existing financial systems one which is built on public blockchains.
If DeFi is to increase its presence, stable coins are definitely going to increase as people tend to trade with less volatility without losing an option to earn the benefits of cryptocurrencies.
World is still running on FIAT currencies and not on bitcoin. If someone wants to hedge their portfolio without spending on FIAT, stablecoins can be their best option.
Most used Stablecoins in the world :
Image credit: Coingecko
Unlike bitcoin or Ethereum, Stablecoins aren’t your typical money minters. However, they are less volatile. These could be very good options for you if you want a passive income and blockchain technology to speed up peer-to-peer payments and transactions.
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