A stablecoin is a cryptocurrency designed to keep its value stable and equal to that of a fiat currency, ranging from $ 0.99 to $ 1.01.
If you have already entered the world of cryptocurrencies, you will surely have heard this term: Stable Coin (Stable Cryptocurrency). A stable coin is a cryptocurrency designed to keep its value stable and equal to that of a fiat currency, ranging from $ 0.99 to $ 1.01, except for extraordinary exceptions. The most important stable currencies have 1 to 1 parity with the dollar.
Cryptocurrencies are no longer just volatility
The cryptocurrency market is characterized by having very high volatility, where it is common to see price variations of 20% or 30% in one or two days in the main cryptocurrencies such as Ethereum and up to 300% in the smallest cryptocurrencies, less known.
Although it is true that in recent times, due to the development and maturation that they are obtaining, each time that volatility becomes less wild.
A stable cryptocurrency allows you to maintain a stable value without having to own the flagged money.
For example, crypto traders, when they see that the market may drop, sell cryptocurrency, Bitcoin or any of the 5,400 that exist, and they do not go to dollars in the bank account. They exchange Bitcoins for a stable cryptocurrency, such as Tether (USDT) for example, which is the most widely used.
It also solves the problem of moving fiat money between cryptocurrency exchanges (known as exchanges) that operate globally, because an international transfer can take hours or days, in addition to its high cost, it also solves the problem of moving money in Bitcoin and be exposed to volatility during that period.
Basically there are two types of Stablecoins:
_ Backed in fiat currency
They are Stablecoins issued by a company that requests permission from the regulatory entities of some country, to deposit dollars in a bank account and issue cryptocurrencies equivalent to the amount of dollars in that account. The end user must trust that they are 100% backed by dollars and that audits are done by the competent entities to verify it.
Currently among those with the largest capitalization we find Tether (USDT), USDC, TUDSY, BUSD as the main ones of this type. The future Facebook cryptocurrency Libra and the digital currencies of some governments are also framed in this support model.
_ Backed by other cryptocurrencies
This type of Stablecoin maintains its value attached to the dollar and is backed by using other cryptocurrencies as collateral. The
People issue through a smart contract and are more transparent, since with a certain degree of technical knowledge, you can audit in real time, how much collateral there is in the smart contract supporting all the coins in circulation. DAI is the most important using this model. There is also MoneyOnChain, which is the first stable cryptocurrency on the Bitcoin network.
Is it worth investing in them?
Stable cryptocurrencies are mainly used in trading and when people opt for a cryptocurrency that does not have as much volatility as Bitcoin by not being able to acquire dollars, since there are no purchase limits in Argentina.
Dollarize without limits in a use case, but there is also what is known as Decentralized Finance, which are financial service platforms that use smart contracts as a basis, basically they allow you to invest or lend your Stablecoin in exchange for a variable percentage that can reach 10% annual return.
The best known platforms are Compound and DAI Savings Rate. This is basically an alternative to saving in dollars or conservative investment in the world of cryptocurrencies, since you may not be interested or have enough knowledge to manage the risk of volatility in the crypto market.
Stablecoins are booming within the crypto market and increasingly grow in their capitalization, there are more companies and governments that issue them. A particular fact is that these move more exchange volume than Bitcoin or Ethereum in cryptocurrency exchanges.
On the other hand, stable cryptocurrencies are gaining ground in everyday applications such as value transfer or payment processing, terrain where other cryptocurrencies have not been able to integrate into traditional financial services of massive use, due to their volatility,
If in the future you collect your salary in cryptocurrencies, through a smart contract that pays you automatically, it is more likely to be through a stable cryptocurrency than in Bitcoin or another, due to its volatility, what you end up receiving may vary significantly. These other cryptocurrencies will remain more as a way to safeguard your value or investment in a financial asset that in the long term can appreciate.