Stable Coins

Source: Block.tech

Why do we need Stablecoins?

Crypto can be very volatile. Within a day, it can go up and down by over 10% or even 90%. We need coins to capture the value and reduce volatility for it to be useable.

Who use it?

Traders are the majority who use the stable coin as it is easy to shift between crypto to Fiat value equivalent. They sell their crypto when the price is high and buy back the crypto when the price drop without moving to fiat where there may be a higher transaction fee and takes more time.

Next group of users will be normal people who wish to use the crypto to buy items. When the price is volatile, it is hard for users to use it in daily life. Imagine, you purchase an item at 1.01 pm, send the crypto and it drops by 50% on the minute before it's transacted.

The merchant will not be happy. The need for a stable price leads to the creation of Stable Cryptocurrencies or common known as Stable Coins. As the name suggests, the price is stable. They peg each Stable coin to a stable value, like USD$1.00 value. With stable Cryptos, decentralized lending is also more viable. 

How it works?

Stable Cryptos can be back with the value of unique assets. If it is back by the value of the United States of The American Dollar (USD), then each time you create a token, you need to deposit 1 USD to a bank when it pegs to a ratio of 1:1. 

Keeping the value in crypto also brings you high-interest yield from 4% to 8% in various platform.

Here is a list of common stable Cryptocurrencies backed by distinct assets. There are a lot more stable coin projects are in development or closed. According to a report from blockdata.tech. Only 30% of the total number of announced stable coins are live.  67% of closed stable coin projects were backed by gold. Ethereum is the preferred blockchain used by 50% of the stable coin projects.

Popular Stable Coins;

Stable Coins Backed by Fiat

Tether (USDT)

• First Pegged to USD with largest market cap but it has a lot of controversy over its financial and operational transparency.
• Runs on either OMNI, ERC20, TRC20 or EOS network.
• Ensure you ask which wallet do you use. Usually, people use the ERC20 version as it is fast, cheaper and popular.

USD Coin (USDC)

• Pegged to USD and owned by Coinbase and Circle.
• USDC is an ERC20 token.
• The US dollar reserves for USDC are audited every month by accounting firm Grant Thornton.

TrueUSD(TUSD)

• True USD pride themselves as the first regulated stable coin fully backed by US dollar
• TrustToken is the platform that produced these stable coin and is backed by by Stanford-StartX, FJ Labs, and BlockTower Capital. TrustToken has partnered with registered fiduciaries and banks to store the funds backing the TrueUSD tokens.

It has also since come up with

TCAD -  back by Canadian Dollar

TAUD -  back by Australian Dollar

TGBP - back by Pound sterling

THKD - back by Hong Kong Dollar

Paxos Standard (PAX)

• Paxos Trust Company (PAX) is a regulated stable coin that has been approved by the New York State Department of Financial Services.
• ERC20 token backed by US dollar with corresponding US dollars held in reserve at FDIC-insured US banks.
• PAXOS has since launched
  Paxos.            -  Back by Gold

         Binance USD - Backed by US dollar partner with Binance.

Gemini Dollar (GUSD)

• Gemini Trust Company, LLC, a regulated, audited New York trust company.
• The U.S. dollar deposit balance is examined monthly by BPM, LLP, a registered public accounting firm, in order to verify the 1:1 peg. All Independent Accountants' Reports are published.

Stable Coin Backed by Crypto

DAI

-  Pegged to USD with Ethereum as collateral on a smart contract. On Mar 18, Ethereum drops more than 40% that caused more than $4million worth of loans to be undercollaterized. MakerDao may add USDC for collateral to increase stability.

• ERC20 token issued by smart contract platform on the Ethereum blockchain. DAI is governed and maintained by MakerDao Foundation.
• Full transparency via public smart contract.

Stable Coins backed by Commodities

DigixGold (DGX)

• Backed by Gold. A token represent 1gram of gold.
• ERC20 token with Vaulting Provider The Safe House, a fully allocated bullion provider based in Singapore. Audited by Bureau Veritas(LBMA approved auditor).
• Minimum redemption amount of 100g
• Aims to provide escrow, collateral, wealth management Dapps and full decentralised organization.

Tips:

1. Support from exchanges, platforms and wallets. The more exchanges that support them, the more liquidity and convenient it will be for you. 
2. Remember the symbol and read properly. Sending USDT to a USDC wallet will not be possible and you will lose the coins.
3. It is better to go for coins that have a transparent and public audit. Those in controversy may not last. 
4. Decentralized projects are in its infancy stage. We do not know if there is any loophole is yet to be discovered. For a start, if you are not technical, it is safer to use centralized Fiat backed Stablecoins.  Also crypto-backed stable coins suffer from the high volatility which may cause a liquidation of your coins in the event if there is a sudden drop in price.

I hope you are able to capture good value in crypto using Stable coin. 

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BTW, this is an abstract from my up and coming book New Assets 3.0 - Ride on the Cryptocurrency wave. 
I have also just launched a comics book. on what life maybe like with Blockchain and Bitcoin www.wishiknewcomics.com