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- Feb 28, 2020
Would you like to know more about crypto world?
Well, today I would like to introduce you stablecoins.
What are stablecoins?
As the name suggests, these coins were designed to give more stability to crypto investments by pegging them with fiat currencies as a reserve asset.
Usually, stablecoins are ‘pegged’ after something with value; this can either be fiat money or another cryptocurrency.
Since s introduction into the market, various types of stablecoins have been popping onto the scene.
While there are many stablecoins in the market, only a few variants remain successful and reliable.
Kinds of stablecoins
Below are the different types of stablecoins you can encounter in the crypto sphere today.
* Collateralised off-chain
One of the most well-known asset types, these are backed by fiat holdings and regulated/verified daily by outside auditors. Collateralised off-chain has two types which are fiat-collateralised and commodity-collateralised stablecoins.
- Fiat-collateralised - These coins are backed by fiat currencies. Examples include Libra, Tether, and Gemini Dollar.
- Commodity-collateralised - Mostly pegged by everyday commodities like gold, oil, and silver. An example of this is the Digix Gold or DGD.
* Collateralised on-chain
One of the easiest stablecoins to use is the collateralized on-chain. These coins are fixed by none other than cryptocurrencies. Ethereum is the most popular backer for this type of stablecoin.
These assets are neither backed by fiat nor crypto assets. To protect this stablecoin from fluctuations in the market, it relies on an intricate set of algorithms and smart contracts.
Importance of stablecoins
* Lessens volatility
The purpose of stablecoins is to provide a fiat peg for the crypto assets that will give it stability while providing swift and cheap transactions.
* Useful for cross-border payments
Stablecoins are useful for sending cross-border payments and remittances. You can send money to other countries at a much faster and cheaper rate.
* Good for crypto-investment
If you’re investing in crypto and want to keep your coins safe from price fluctuations, you can use stablecoins to ensure the value of your digital assets will hardly ever drop.
TOP 5 stablecoins
Just like fiat, there are various types of stablecoins available on the market today. Here are the top recommended variations.
1. Tether (USDT)
As s 2020’s leading stablecoin, Tether has continued to prove its competence by launching more exciting innovations in the market. Instead of using gold bars as collaterals, Tether utilizes the United States dollars in exchange for the worth of a coin.
2. USD Coin (USDC)
Similar to Tether, the USD Coin is also backed by the United States Dollar. Every 1 USD Coin equals to $1 US dollars. With USD Coin, transactions are simple. Global exchanges can now happen in just a matter of minutes or even seconds by using different brands of cryptocurrencies that allow USD Coin as a payment method.
3. TrueUSD (TUSD)
Known as one of the most reliable and most-used stablecoins, TrueUSD earned its reputation from its fiat reserves. This coin is also popular among users because of its updated transparency reports.
4. Multi-Collateral Dai (DAI)
DAI runs on Ethereum. Unlike USDT and TrueUSD, DAI is backed up by a company called Maker platform.
One of the most notable features of this stablecoin is that it allows users to create and destroy the tokens.
5. Paxos Standard (PAX)
PAX is a regulated stablecoin developed by the Paxos Trust Company. PAX has a 1:1 ratio. It’s back-up fiat assets are kept in FDIC-insured banks in the United States. Additionally, Paxos is one of the most utilized coins, currently catering to the 40+ currencies.
The future of stablecoins
As technology continues to evolve over time, modern problems need modern solutions. For crypto coins, that’s exactly what stablecoin is. The future of stablecoin is bright because of the great potential for it to be used in daily life instead of fiat money. The benefits are just too great.
With secure blockchain tech and anchored stability, stablecoins are the best of both worlds. Get your crypto wallets ready because it won’t be long until stablecoins are as common as fiat money.
Our previous lessons about cryptocurrencies can be found here:
Lesson 1: Get to know the coins
Lesson 2: Where to buy and keep cryptocurrencies
Trading cryptocurrencies carries a high level of risk, and may not be suitable for all investors. Before deciding to trade cryptocurrency you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.