Everything you need to know about stablecoins

The market for cryptomonnaies is known for its volatility. This means that coin prices can rise and fall sharply, making it difficult for investors to focus on a particular coin. However, stablecoins solve this problem.

Stablecoins are digital currencies which are backed by assets such as fiat currency, other cryptocurrencies or gold. Stable assets make these coins less susceptible to fluctuations and keep their prices stable.

Some stablecoins also use a computer algorithm to keep their value relatively stable. Usually, the entity behind the stablecoins will set up a “ Reserve where it securely stores the asset or basket of assets backing the stablecoin.

Pfor example, $1 million in an old-school bank (the kind with branches and tellers and ATMs in the lobby) to back up a million units of a stablecoin. In this article I talk to you about stablecoins. But first, I invite you to create your own on Coinbase, lhe best Cryptocurrency platform in the world

Let's go….

???? What are stablecoins?

Stablecoins are cryptocurrencies that aim to imitate traditional currencies. A stablecoin is usually a cryptocurrency backed by the value of an underlying asset. What this underlying asset may vary from piece to piece, which we will discuss later in this article.

Many stablecoins are pegged to a 1: 1 ratio with certain fiat currencies. These are currencies such as the US dollar or the euro, which can be traded on an exchange.

other stablecoins are pegged to other types of assets, such as precious metals like gold or even other cryptocurrencies.

stablecoins, are supposed to have a stable price. In other words, they are supposed to hold roughly the same value from the day you buy one to the day you spend or redeem it.

This is because unlike other cryptocurrencies, the price of most stablecoins is based on a fiat currency, like the US dollar, or a commodity like gold, although many stablecoins today are pegged to the dollar.

Thus, investors buy stablecoins not to make a profit, but more like a place to store cash in the cryptocurrency infrastructure and for use when buying and selling other crypto assets.

They are also used for other types of financial exchange, such as lending and borrowing or sending payments abroad. For example, to family members – much faster and more transparently than by other means.

???? This is how stablecoins work

To better understand how stablecoins work, here are 5 things you need to know about stablecoins.

🔰 First thing to know

The advantage of stablecoins is that they are designed to withstand volatility in general. In addition, they can provide mobility and accessibility. It is a more stable cryptocurrency that is decentralized.

This implies that it is not tied to a centralized system or agency. This, in turn, gives it autonomy. Learn more about decentralized finance.

🔰 Second thing to know

There are several other reasons why stablecoins are popular among investors. They allow faster money transfer and ensure the confidentiality of financial data.

Along with this, stablecoins also allow users to bypass financial services fees.

🔰 Third thing to know

In many ways, stablecoins may not be like other crypto investments.

They are designed to stay in place in terms of value. This means that while their value won't decrease, it won't increase either. This can be understood by comparing the USD coin to Bitcoin.

Since its inception, the USD coin has hardly fluctuated from its value of $1. Bitcoin, on the other hand, was valued at 4 000 dollars in 2019 and at 60 000 dollars May 2021.

🔰 Fourth thing to know

It would be wise to think of stablecoins as a form of digital money. However, despite its stable nature, it is still a cryptocurrency. Thereforet, it is still a newer entity that may have undiscovered risks.

🔰 Fifth thing to know

Cryptocurrency can be a dangerous option if you want to invest all your savings.

Approach stablecoins with a mind open and explore the area. You can also use stablecoins as a first step towards investing in some form of cryptocurrency. However, you will also need to know what altcoins and how do they work? 

???? Know the potential risks of stablecoins

Many potential investors are afraid to invest in crypto. The reason is that it is still unregulated and confusing.

Compared to other cryptocurrencies, stablecoin is probably a safer bet if your goal is to get back the money you invested. In a positive way, this is the gateway to cryptocurrency.

The stablecoin is a quick and inexpensive way to exchange crypto assets and transfer funds across borders.

This means can be particularly useful for people who leave their country of origin to work elsewhere and wish to send money to their family.

If ever the stablecoin is more widely adopted as a medium of exchange, it could potentially benefit consumers and retailers in terms of choice, increased efficiency and reduced costs compared to banking systems and credit card traditional today.

That said, because there are so many transmitters different from stablecoins and that they each have their own policies and offer varying degrees of transparency, you should do your own research before buying from one of them.

???? Types of warranty in stable parts

Stablecoins come in a range of flavors. Collateralized stable coins use a variety of asset types as backing:

Fiat: Fiat is the most common collateral for stablecoins. The US dollar is the most popular among fiat currencies, but companies are also exploring stablecoins pegged to other fiat currencies, such as BiLira, which is pegged to the Turkish lira.

Precious metals. Some cryptocurrencies are tied to the value of precious metals such as gold or silver.

Cryptocurrencies. Some stablecoins even use other cryptocurrencies, such as ether, the native token of the Ethereum network, as collateral.

Other investments: Tether's USDT was once supposed to be backed 1 to 1 with dollars. But its collateral mix has changed over time, and in a breakdown provided in 2021, the company said nearly half of its reserves are in commercial paper, a form of short-term corporate debt.

He did not disclose the issuers of this document, but claims that it is all rated A-2 or higher.

???? What are the most popular stablecoins?

To give you a taste of the experimentation happening in the land of stablecoins, let's take a look at some of the most popular stablecoins.

🔰 diem

die (formerly known as Libra) is a stablecoin in the works, originally designed by the powerful global social media platform Facebook. Although Libra was not launched, it had more psychological impact than any other stablecoin.

Governments, including China's, are now exploring their own crypto-inspired digital currencies, in part because they fear they pose a competitive threat, as Facebook is a multinational corporation with billions of users across the world. world.

Initially, Association Diem, the consortium set up by Facebook, said Diem would be supported by a “cart” of currencies, including the US dollar and the euro.

But due to global regulatory concerns, the association has since backtracked from its original ambitious vision. Instead, he now plans to focus on developing multiple stablecoins, each backed by a separate national currency.

🔰 Tether

Tether (USDT) is one of the oldest stablecoins, launched in 2014, and is the most popular to date. It is one of the most valuable cryptocurrencies by market capitalization.

The primary use case for USDT is to quickly move money between exchanges to take advantage of arbitrage opportunities when the price of cryptocurrencies differs on two exchanges; traders can make money on this spread.

Tether Ltd., the company that issues USDT, has been embroiled in a 22-month legal battle with the New York Attorney General over allegations that Bitfinex (a sister company to Tether) tried to cover an $850 million shortfall dollars using funds taken from Tether.

Eventually the case was settled on February 23, 2021, Tether and Bitfinex being forced to pay 18,5 million and submit quarterly reports showing Tether's stablecoin reserves for the next two years.

🔰 Usd Coin

Launched in 2018, USD Coin is a stablecoin jointly managed by cryptocurrency companies Circle and Coinbase through the Center Consortium.

As a tether before its shift to a combination of collateral assets, USD Coin is pegged to the US dollar with a circulating supply of nearly $26 billion.

🔰 Dai

Running on the MakerDAO protocol, Dai is a stablecoin on the Ethereum blockchain. Created in 2015, dai is pegged to the US dollar and backed by ether, the token behind Ethereum.

Unlike other stablecoins, MakerDAO intends dai to be decentralized, meaning there is no central authority to control the system. Instead of that, smart contracts Ethereum – which encode rules that cannot be changed – have this work instead.

There are still issues with this innovative model, however; for example, if smart contracts that underpin MakerDAO don't work exactly as expected.