Crypto assets can be purchased and sold independently from other asset classes in investment facilities. This is true for some stablecoin. Popular crypto assets may experience high market volatility.
The growth of blockchain technology and crypto assets has grown rapidly over the past decade. Both have the potential to be transitional agents for the traditional financial system and other sectors. Some crypto assets are considered alternative assets to precious metals like gold.
Stablecoin was designed to address this problem. What is a stable coin exactly? What’s the future for stablecoin and other crypto assets? This type of crypto asset is superior to different types.
What are Stablecoin?
This type of crypto asset is similar to its name, translated as “Stable Coin,” and has a stable value, unlike other crypto assets. They are supported by fiat currencies, which are known as stable assets.
Stablecoin can be described as a traditional bank mechanism that is integrated with blockchain technology. This crypto asset was designed to provide it with other benefits than price stability. It can also maintain liquidity, security, and transparency of transactions.
Stablecoins allow traders to conduct financial transactions more securely and privately. This makes it more difficult to transact across payment platforms.
Types and Types of Stablecoin
Let’s learn more about stablecoins. Here’s a list.
1. Crypto Assets backed
Stablecoin is the first type. It is supported by other crypto-assets created in the past. Crypto assets like Bitcoin and Ethereum support this stable coin type.
The supported stablecoins are also subject to fluctuating volatility because of the crypto asset’s value. This type is, therefore, less popular than those supported by fiat currencies.
2. The Algorithm Support
Stablecoin, which is supported via an algorithm, is the second most difficult. It does not have any supporting assets, so it relies only on smart contracts and algorithms to adjust Stablecoin assets to maintain market consistency.
To ensure that market movements are not manipulated, the algorithm must be able to adapt to them.
3. Fiat backs you
Currency Stablecoin, which is backed with fiat currency, is the most common type of Stablecoin. This type can already be collateralized with fiat currencies, such as the US Dollar. This type is not only the most widely used, but it also happens to be the first stable coin type to gain popularity.
- RupiahToken(IDRT): RupiahToken, a stablecoin based on Ethereum blockchain, is 1/1 with real rupees. IDRT is essentially a digitalization of the Rupiah. It generates tokens equal to Rupiah that the user has deposited and sends them to the user’s Ethereum account.
- Tether (USDT): a pioneering stablecoin, was released in 2014. USDT is guaranteed to be 1:1 with the US dollars. USDT is currently the most widely traded stablecoin according to market capital.
- USD Coin (USDC): a stable coin, was issued in 2018 by Coinbase and Circle. The USDC value will match the US dollar 1:1, just like USDT. It is the 2nd most stable coin in terms of market capitalization.
It is possible to guarantee that the coin’s value does not fluctuate as long as the economy stablecoins in the country are stable. This means that even though the cryptocurrency economy crashes and Bitcoin falls to $0.
Stablecoin have a Bright Future
Stablecoins are gaining a lot of interest due to the stability of their underlying assets. Stablecoins can be used as the base currency to trade and are usually on Defi basis with high interest rates. These stable coin loans are available on the crypto asset marketplace.
The reality is that citizens have yet to adopt the first decentralized crypto assets like Ethereum and Bitcoin. Stablecoins backed by fiat currencies offers more chances to be adopted by the larger community.
The public can accept Stablecoins as an alternative to fiat currency. It is not yet clear if stable coins will replace fiat currencies. Because fiat currency is still an important part of Stablecoin’s turnover.
Many things can go wrong, and there are stablecoins with limitations. Tether is one example. Fiat-backed stablecoins can be centralized. This means that they are controlled by one substance. This gives you confidence that these substances back their stablecoins with real fiat.
Some believe that Tether holds only a fraction of what it claims to have, as Tether has not provided an audit of its reserves. Tether’s market capitalization fell more than $1B in October 2018 as a result.
The stable coin must be subject to 3rd party audits to address this issue. This will ensure they are trustworthy and help maintain a high track record.
A stablecoin is a crypto asset with a value similar to a specific asset, such as the US dollar or another commodity like gold. Tether (USDT) and USD Coin (USDC) are two examples of notable stable coins. They are both covered 1:1 by the US dollar. One USDC or USDT equals one US dollar.
Stablecoins are a way to make cryptocurrency more helpful, even though it’s impossible to know the future in the constantly changing blockchain world.