What are Stable Coins?
What are Stablecoins? Why might they represent a worthwhile alternative? Are there any particular types of Stablecoin which have proven to be popular in recent times? Each of these questions warrants a closer examination.
The Stablecoin Defined
As the name is likely to suggest, the principle behind Stablecoin is rather simple. as opposed to other types of cryptocurrencies, the Stablecoin has been developed in such a way as to be backed by a specific reserve asset.
Examples of reserve assets can include (but are not limited to) gold, commodities and fiat currencies held by central banks.
The main intention is to provide traders with a type of collateral that can be utilised in order to offset extreme price changes which have often been pegged to standard cryptocurrencies. Thus, the Stablecoin may very well be a worthwhile alternative for conservative traders to consider.
The Advantages of a Stablecoin Position
It is a foregone conclusion that the main intention of the Stablecoin is to reduce levels of open-market volatility.
This has arguably represented one of the most profound risks associated with traditional cryptocurrencies.
As options such as Bitcoin and Ethereum are neither backed by any real-world assets nor regulated by any central bank, prices have the potential to exhibit massive swings within short periods of time. Although this can lead to substantial gains, it can also equate to massive losses.
The Stablecoin intends to provide an investor with the best of both worlds. These principles can be summarised by making two key observations:
- Transactions can enjoy instantaneous processing and complete anonymity.
- Stablecoins are associated with the relatively low levels of volatility often witnessed in traditional fiat currencies.
Thus, the Stablecoin can be leveraged as a single asset or it can be used to offset the risks associated with more volatile market positions.
The Most Popular Stablecoin Options
There are a handful of Stablecoin variants to consider. For example, fiat-collateralised coins such as Tether and TrueUSD are backed up by real-world dollar assets.
Some other variants are reinforced by cryptocurrencies themselves. The DAI is an example of a type of Stablecoin that is paired with Ethereum.
Finally, algorithmic Stablecoins retain relatively stable values thanks to automated supply-and-demand changes in volume. The most well-known example can be seen in Basecoin.
Stablecoin represents an interesting way to capitalise upon the profit margins and anonymity often attributed to the cryptocurrency markets without incurring the same level of risk.
Investors who have been looking for a middle-of-the-road option should therefore examine this unique type of digital currency in more detail.
What Are the Best Stable Coins
To show you what is happening in the stablecoin environment, here are some of the most popular stablecoins.
Tether was among the first and well-known stablecoins, the types of cryptocurrencies whose intention is to compare their trade value to a currency or other reference points to minimize volatility.
Since most digital currencies, including famous ones like Bitcoin, have encountered specific periods of extreme instability, Tender and a couple of other stablecoins try to control price variations to capture users who might somehow be wary.
The price of Tether is directly linked to that of the American dollar. Tether enables other cryptocurrency users to transfer currency into U.S. dollars very fast than exchanging it into regular currency.
Tether was founded in 2014 and boasted itself as “a blockchain-facilitated network created to enable the fiat currencies to be used digitally. Subsequently, Tether permits people to use blockchain networks and similar technologies to trade using normal cash as it decreases instability and complications that come with digital currencies. Tether was the third coin by market value in January 2021, having a market cap of $24.4 billion $1.00 per token value.
Bitcoin Cash (BCH)
Bitcoin Cash (BCH) has a rich history in altcoins, one of the first and most prosperous hard forks of the primary Bitcoin. In the crypto environment, a fork comes in due to debates and arguments among creators and miners.
Because of the decentralized digital coins, wholesale fees, and the code besides the token, this coin must be created because of the comprehensive agreement. The operations of this procedure differ depending on a specific cryptocurrency.
When different operations can’t come into a consensus, the digital currency is often divided, as the primary chain remains authentic to its primary code as the new chain starts life as a new form of the first coin, whole with changes to its code.
BCH started in 2017, emerging from one of these splits. The debate that resulted in the formation of that BCH included issues with scalability since the Bitcoin system has an end on the block size, which is one megabyte (M.B.).
BCH expands the block size from one M.B. to eight M.B., and the concept being that bigger blocks can grasp many transactions inside them, hence increasing the transaction speed. It also makes other alterations like the elimination of Segregated Witness protocol which influences block space. BCH had a market cap of $8.9 billion, including a value per token of $513.45 in January 2021.
True USD (TUSD)
True USD or “TrueUSD” is fully supported by U.S. dollar and is among the top liquid stablecoins in the American market.
It’s a crypto that provides minimal trade charges compared to wire transactions of fiat currency and more excellent interest rates on deposited balances.
Binance Coin (BNB)
Binance Coin is a service cryptocurrency that functions as a payment for the charges incurred when trading on Binance Exchange. Individuals who make payments using the token can transact at a discount.
The coin’s blockchain is another platform where Binance’s distribution trade takes place. Changpeng Zhao is the Binance exchange founder, and the trade is among the most famous exchanges worldwide depending on transaction volumes.
Binance started as an ERC-20 token that functioned on the Ethereum blockchain. Then it launched its mainnet. The platform uses the proof-of-stake consensus system. Binance stood at $6.8 billion market shares by January 2012, having one BNB valued at $44.26.