What Are Stablecoins?
And what makes them stand out?
As you know, one of the most important cryptocurrency characteristics is its high volatility. Some traders use it for their own benefit, but for most people it is inconvenient. This is one of the main reasons why cryptocurrency adoption is so slow. The idea of price-stable crypto has been in the air for a really long time and it has been considered the Holy Grail of the crypto world.
So what are stablecoins?
Generally speaking, they are price-stable cryptocurrencies, which market price is pegged to another stable asset. So far, there are 3 types of stablecoins.
1. Fiat-collateralized. These cryptocurrencies are backed by real-world currency and traditional assets (gold, silver, oil, etc.). These coins share a one-to-one relationship with the fiat currency at which it is pegged. The advantages of fiat-collateralized stablecoins are:
- Simplicity. This is a great advantage, both in helping people to understand how it works and in implementing those solutions.
- 100% price stable.
- Security. It’s less vulnerable to hacks since no collateral is actually held on the blockchain.
The examples of fiat-collateralized staiblecoins are Tether (USDT), TrueUSD (TUSD), Digix (DGX).
2. Crypto-collateralized. These coins are backed with reserves of another cryptocurrency. Put simply, users stake a certain amount of crypto and then borrow stablecoins against that collateral at a fixed rate. Among the advantages of using crypto-collateralized stablecoin are:
- High level of decentralization.
- Liquidity. It can easily and quickly be exchanged for underlying crypto collateral with a simple blockchain transaction.
- Transparent system. You can effortlessly inspect the history of transactions, the collateralization ratios of a particular crypto asset, and how much reserves actually exist in the system at a given time.
The most well-known examples of this type of coins are Dai (DAI) and bitUSD (BITUSD).
3. Non-collateralized. These types of coins feature an algorithmic mechanism to achieve price stability. It is a kind of digital central banks. The main benefits are the following:
- No collateral required.
- They are the most decentralized and independent coins.
- No ties to any crypto or fiat currency.
A great example of this type of coin is SagaCoin (SAGA).
As you can see stablecoins are really the hottest thing in crypto right now. For sure we will see the evolution of stablecoins in the future. With newer technologies, they can become the middle ground that brings traditional fiat banking and crypto markets together.
With the StealthEX service, you have instant access to more than 200+ cryptocurrencies including oodles of stablecoins. Like, really a lot of them. Because we thought you may consider stablecoins as one of the options for your investments and listed them on our platform for you in advance.
And remember that the StealthEX team is always ready to assist you with every issue you might face while exchanging your crypto. For all requests message us at [email protected].
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