An Introduction To Stable Coins

An Introduction To Stable Coins

It’s been a decade since Bitcoin came out as the first cryptocurrency. Others like Ripple, Dash, Ethereum, Litecoin, Zcash, etc., closely followed suit. It is safe to say that people are well acquainted with the term cryptocurrency. However, most are quite skeptical when it comes to investing in it. Why? This is because cryptos are very volatile. The rate keeps fluctuating, and it comes with the risk of heavy loss as well. It can appreciate or depreciate 20 to 30 percent in a few hours. Stable coins came into being to solve the stability issue related to cryptocurrency.

What are Stable Coins?

Stable coins fall under the cryptocurrency category as well. However, it does differ in its properties. The stability comes from the fact that stable coins are linked or pegged to fiat currencies, gold, or oil. This keeps the value stable, which is the basic problem with Bitcoin, Ethereum, and the likes.

Stable Coins use blockchain technology just like any other cryptocurrency. Then where does the difference lies? In stable coins, they are dependent on their cryptograph and a strict set of audits. These make sure that the asset pegged to the crypto is intact. A person can access the stable coin from any part of the world as it is not under any jurisdiction. Hence it is quite stable and, by certain counts, resembles the fiat currency. Being stable gives people the peace of mind to use it in dealings and not just hold on to it in the hopes of future returns.   

Different Types of Stable Coins

There are three varieties of stable coins. A brief account of which is given below:

  • Fiat-Collateralized Stable coins These are stable coins backed or pegged by fiat currency reserves like Euro, USD, and the likes. 
  • Crypto-Collateralized Stable coins These kinds of stable coins are backed by other cryptocurrency reserves. This kind is considered risky and is yet to be tested in the active markets.
  • Non-Collateralized Stable coins These are stable coins that are backed or pegged by nothing. The price is kept stable by the smart contracts that are governed algorithmically.

Some of the noteworthy stable coin projects are Tether (USD), MakerDAO (MKR), Basis, TrueUSD (TUSD), and Havven. Experts believe that the popularity of stable coins will be highly beneficial in the crypto industry’s growth.

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