What is Stable Coin ?

 

 

Stable coins are cryptocurrencies that are linked to currencies, gold, or other financial organisations. Stable coins were designed to provide an alternative to the extreme volatility of the most popular cryptocurrencies, such as Bitcoin (BTC), which has rendered such assets unsuitable for mass transaction use.

Significance of a stable coin:

1. Stability in a volatile market:

Stablecoins provide the same value for both cryptoinvestors and traders in the cryptomarket.
Traditional investors might choose to invest in stable coins when cash, assets, or other crypto assets show rising volatility.

2. A Quick Move in the Crypto Market:

Cryptoinvestors or traders are turning to stable coins due to the high volatility in the market. Investing in stablecoins allows you to stay current with the cryptocurrency market and move quickly between transactions without having to wait days for fiat money to be transferred.

Uses of stable coins:

1. Cryptocurrencies are subjected to price fluctuation and volatility, but stable coins do not have much fluctuation.

2. Stable coins also have the same advantages as other crypto coins and tokens: security, quick transfers, and the lack of intermediaries.

3.  Stablecoins can be used to settle worldwide payments quickly.

4.  Stablecoins are fundamentally stable assets that may be used as a store of value, encouraging their adoption in everyday transactions.

5.  Blockchain-based payments eliminate the need for middlemen in transactions.

Types of stable coins:

1. Fiat Collateral stable coins:

Fiat-collateralized stablecoins are the most common type of stablecoin you'll come across. They are backed by a fiat currency such as the Euro, GBP, or US Dollar.

The most important advantage for newcomers to better understand cryptocurrency is its simplicity.As a result, fiat-backed stablecoins might play a significant role in fostering widespread use of stable coins.The country's economic stability guarantees that the value of stable coin fluctuates only slightly.

2. Commodity-Backed Stable coins:

Generally, commodities have the potential to appreciate in value over time. As a result, such stablecoins tend to provide higher incentives to those who store and use commodity-backed stablecoins. Furthermore, commodity-collateralized stablecoins enable anybody throughout the world to invest in precious metals such as gold.

3. Crypto Backed Stable coins:

Stablecoins backed by cryptocurrency might help processes become more trustless by improving security and transparency. The benefit of decentralisation is that your finances are not controlled by a single body.

Furthermore, many crypto-backed stablecoins have numerous cryptocurrencies backing them to ensure efficient risk allocation. Additionally, crypto-backed stablecoins benefit from increased liquidity. However, crypto-collateralized stablecoins are now one of the more complicated stablecoin forms in circulation.

4. Algorithmic Stable coins:

Algorithmic stablecoins use an algorithm to manage the supply of stablecoins. This strategy is also known as "seizing shares." As demand grows, additional stablecoins will be issued to bring the price back to normal. In the event of extremely low coin trading, coins on the market are acquired in order to reduce the circulating supply.

Popular stable coins:

1. US Dollar Coin (USDC)

2. Tether (USDT)

3.  BUSD (Binance USD)

4. TerraUSD (UST)

5. Digix Gold Token (DGX)

6. Dai (DAI)