Stablecoins are a relatively new type of cryptocurrency that aims to offer the stability of traditional fiat currencies with the benefits of digital currencies. With many different stablecoins on the market, it can be difficult to know what to look for and how to choose the right one. Learn more: www.bitcoinsuperstar.app
What is a stablecoin? A Brief Overview
Stablecoins are the newest buzzword in the world of cryptocurrencies and are taking the financial industry by storm. But what exactly are stablecoins, and why are they causing such a stir?
In this section of the article, we will take a closer look at what stablecoins are, how they work, and why they are seen as the future of money. So buckle up, and get ready to discover the exciting world of stablecoins!
Stablecoins are a form of crypto asset pegged by other assets such as fiat currency, commodity, or any other financial instrument. Due to the backing of these assets, stablecoins’ value is much more stable than normal cryptocurrencies.
For example, bitcoin is a cryptocurrency we all know as the most volatile digital asset. The value of bitcoin keeps frequently changing, even multiple times in a single day. On the other hand, Tether, a stablecoin, is backed by the US dollar; thus, its value remains almost the same as the UD dollar.
You can say one unit of Tether is worth of 1 US dollar approximately. The difference is negligible. This is maintained by reserving1 US dollar as collateral or with the help of algorithmic formulas in issuing one unit of Tether to control its supply.
History of stablecoin:
The need for stablecoins came from the excessive price volatility of other crypto coins. For many users, these coins such as bitcoin and Ethereum are not suitable for safety. In contradiction to this, stablecoins provide safety regarding price volatility to investors.
The first appearance of stablecoin was seen in 2014 when BitUSD was launched as a product. The creators were Charles Hoskinson and Dan Larimer. BitUSD was a blockchain platform known as Bitshare blockchain. Its native token is BTS. BitUSD was backed by this native token BTS and collectivized by several other cryptocurrencies.
After that, Tether was introduced in the same year, 2014. It was a product of Tether Limited, and in a short period, Tether became the most famous stablecoin in the world. As we have already discussed, Tether takes 1 US dollar in its issuance as collateral; its price remains almost the same as the US dollar.
The innovation of Tether was to fulfill the goal of keeping a cryptocurrency’s price stable. By the backing of fiat currency. The Tether can maintain a fixed price, which helps so many people safely invest in it though the returns are lesser than any other volatile crypto.
How many types of these coins exist?
Stablecoins have several types of them that are used for different purposes.
- Fiat-collateralized stablecoin:
Fiat-backed stablecoins are the most common forms of stablecoins. The value of fiat currencies pegs them that they are backed off. The backing is done in a 1:1 ratio so that the price remainsthe same as that of that backed fiat currency.
- Non-collateralized stablecoins:
These stablecoins are not being backed as a collateral method with the help of algorithmic equations. They are pegged by any asset, such as the US dollar or gold.
- Crypto-backed stablecoins:
Cryptocurrencies back these stablecoins. Several cryptos are locked up as a single collateral to back the stablecoin. Smart contract technology is used here. However, as cryptos back them the price of the stablecoin is not as stable as fiat-backed coins.
- Commodity-backed stablecoins:
Precious metals like gold peg commodity-backed stablecoins. These commodities, known as interchangeable assets, use the collateralization method to peg the stablecoins.
Conclusion
At the end of the day, stablecoins are a promising development in cryptocurrency, offering the stability and security at Ethereum trader that many investors are looking for. Whether you are interested in trading, payment options, or simply seeking a safe place to store your money, stablecoins may be worth exploring. So take the time to research the different options available and see if stablecoins are the right fit for you.
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