In recent months, the cryptocurrency market has come up with a term called “stablecoin” or “stable currency”, with the aim of providing stability and security to the cryptocurrency market. So, what are stablecoins? Which is the best stablecoin and what are the characteristics that make them so popular in the Blockchain community?! All will be answered through the article below:
What are stablecoins?
Stablecoins, also known as “stable coins”, refer to a cryptocurrency developed on the Blockchain platform with a stable value, which means that the prices of these stablecoins are tied to a type of asset. Fixed like gold or fiat currency (USD, EUR) makes it less volatile, decentralized and not controlled by the central bank or any organization.
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What is the best stablecoin?
More and more stablecoins are appearing in the cryptocurrency market, such as TrueUSD, USD Coin, nUSD, etc., but Tether (USDT) is still the most popular stablecoin. It is used by best exchanges as a trading market and more and more traders are using it as a “storm prevention” method. USDT has an almost 1:1 conversion rate with USD (USD).
Main features of stablecoins
Each stablecoin has different mechanisms and development processes, but they all must have the following four important properties:
*.Price stability (the most important factor)
*.Transparency
*.High security
*.The unit's reputation stands out for its conversion
If a stablecoin does not possess one of the four features, it will not gain the trust of users or have credibility in the cryptocurrency market.
Pros and cons of stablecoins
Advantages:
1. The price is stable (the fluctuation range is less than 1%)
2. A safe haven for traders when markets fall
3. Increasing the development of virtual currency in reality
Contras:
1. Easily manipulate supply and manipulate the cryptocurrency market
2. Users run the risk of not being supported by any property
3. There is likely to be high volatility when there is bad news related to stablecoins
4. Expensive for management, asset auditing
Classification of stablecoins in the market
There are 3 types of stablecoins on the market, namely:
-Stablecoins – debt assets: → a form of debt asset issuance secured by a reputable intermediary, this intermediary will guarantee the conversion of 1 stablecoin into another asset at a fixed rate. For example: Tether Limited guarantees the exchange of USDT to USD at a ratio of 1:1
Stablecoins típicos: Tether, TrueUSD, USDC, Arccy.
-Stablecoin – colateral → is the form of collateralization of another cryptocurrency on the Blockchain. For example, the BitShares exchange creates stablecoin bit.USD and must lock (collateralize) a corresponding amount of BTS.
Stablecoins típicas: BitShares, Maker, Havven, Sweetbridge, Augmint.
-Stablecoins – no collateral → It is a currency without supply-demand regulation, it works by reducing prices to reduce supply to increase prices, when prices increase it will increase supply to reduce prices.
Typical stablecoins: Basecoin, Carbon, Shards, Kowala.
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Conclusion
We have just provided you with all the information about stablecoins that every investor needs to know. These stablecoins play a very important role in the cryptocurrency market, with a stable price that helps investors not to depend on fiat currencies and to convert to other virtual currencies such as BTC, ETH, XRP is fast. However, stablecoins still contain risks such as decentralization, which is easily controlled and manipulated by organizations.