What Is A Stablecoin?
You must have heard of cryptocurrency which has been the recent talk of the town. Well, stablecoins are a form of cryptocurrency. However, their value often depends on such assets as fiat currency, any precious metal, or any other type of cryptocurrency.
It is relatively new compared to Bitcoin. A major reason why people have been discussing how to buy stablecoin is that it provides price stability, and as stated earlier, a reserve asset gives it substantial backing. In a way, it would not be wrong to say that stable coin presents the best of both worlds to its users - instant and secure crypto payments as well as stable valuations of any fiat currency in the world. This is the sole reason why stablecoin cryptocurrency has received more fame and support of the masses. The public is bound to pick what is safer for them and guarantees return on investment.
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Is stablecoin hundred percent safe?
Well, none of the cryptocurrencies in the world are full-proof safe. And, stablecoin is no exception. Though there is a long list of stablecoins that are out there in the market and constantly transferred; therefore, it is not so safe. It implies that you have to be vigilant when you deal with it.
According to past users, there are several big names in the online world that have been accused of transparency when it comes to stable coin transactions. You may or may not know, but Tether is a stable coin, which is the seventh biggest cryptocurrency in the world at this moment. However, when advances have been made to verify its claim of no security issues, the advances have not been welcome. This claim has often been under scrutiny. As a dealer, you must be aware that a stable cryptocurrency is a hoax.
How do stablecoins work in the market?
A very common question asked by people is how do stablecoins work. Well, you first need to understand that there are two major reasons as to why stable coins are able to establish price stability and loved by the US masses.
- Collateralization (backing): In this first method, what happens is that the stable coin has to maintain a fixed currency reserve. For example, if the choice is the US dollar, then that is collateral to issue a suitable number of stable coins. Other examples of collateral can include gold, silver, or commodities of use, such as oil. Discussing the maintenance of these reserves, we should say that it is done by independent custodians and it is audited at regular intervals to check adherence to the necessary compliance.
- An algorithmic mechanism to buy and sell a reference asset or its derivatives: In this method, there is no reserve that comes to the rescue. Instead, there is a mechanism that is put to use. This mechanism can be anything. Let's consider a central bank as a mechanism. This is used to increase or decrease the crypto supply bases on the consensus. It is actually similar to a bank printing more or less notes than already in use, depending on the current population.
Why do you need stablecoins?
Now that you have read and understood what is a stablecoin and how it works, you must be curious why do you need it at all. The main purpose why stable coins have been created is to solve price volatility. Simultaneously, it also aspires to retain other formidable characteristics such as the unrestricted flow of capital and censorship assistance.
The main reason why you too should think of stable coins is because it provides a very low cost to the user and high-speed transactions are always desired. If market enthusiasts are to be believed, then stable coins can be used for loans and remittances as well as wire transfers.
List of the most known stable coins
With such valuable information right at your fingertips, it is time to disclose what stable coins are top ones. It is no less than your personal pocket guide on investing in cryptocurrency.
- Tether (USDT): This is the most renowned stable coin at this moment. There is a discussion of which stablecoins are decentralized or centralized, this name is bound to pop up. It is backed by the most eminent fiat currency, the US dollar. The ratio of this backing is 1:1, and this means that the value one Tether is equal to the value of one US dollar. It is most widely used, and the only con is that there is no transparency to this stable coin.
- TrueUSD (TUSD): The second on our list is TrueUSD, and this is also backed by the US dollar. Unlike Tether, you can be sure that this stable coin is absolutely transparent. All the attestations are made public, so that the masses can have a look at it. This is why this crypto has emerged as the most stable this year. But does this mean that there is no con at all? You wish! The adoption rates are way lesser.
- MakerDAO (DAI): This is a resilient stable coin. This means that you can borrow this stable coin on your own terms. It is actually a decentralized institution that has come up with a new approach to making this type of cryptocurrency.
- Paxos Standard (PAX): Last but definitely not least, we have Paxos Standard. You have probably heard this name earlier even if you are a novice in this field. This is so because it has been recognized as the world’s first regulated stable coin to be launched. Presented to the masses as a brainchild of the Paxos Trust Company, this too has a ratio of 1:1 with the great dollar of the United States of America. It also makes it easier for you to understand how to calculate stablecoin revenue.
Latest news on Tether
The media is the best place to gain all sorts of information. This is why we bring you a classic ongoing case on Tether. The New York Office of the Attorney General has alleged that precisely $850 million of Tether's funds have been used to get over losses at Bitfinex. Bitfinex is an affiliated exchange, and this has affected the general confidence in stablecoin price and stablecoin index.