What Is A StableCoin? | StableCoin Explained | How StableCoins Work?

 

In today's society there are a variety of options for a person to grow their savings or to be more specific than money,

 

a person's money can be invested in a variety of ways these options are either hazardous or safe and cryptocurrency is one among them.

 

basically it is a form of payment that is used to exchange goods and services and,

 

there are several type of cryptocurrencies present in the market and one among them which is recently bagging a lot of popularity and interest is stable coins.

 

but this makes me question what is stable coin and why people are interested in it.

 

 

1 - What is stable coins

2 - Types of stable coins

3 - Stable coins vs other cryptocurrencies

4 - Best stablecoins according to market capitalization

5 - Why are stablecoins so important and

6 - What can you do with these stable coins

 

1 - What Is Stablecoin

 

A stablecoin is a type of cryptocurrency that is backed by reserve asset like the us dollar or gold that aims to provide price stability,

 

it started gaining popularity since they try to combine the best of both worlds,

 

the rapid processing & security or privacy of cryptocurrency payments,

 

as well as the volatility free and stable prices of paid currencies,

 

2 - Types of Stable Coins

 

1 -  Fiat collateralized stable coins

 

It uses a fiat currency reserve such as the us dollar to issue a sufficient number of crypto dollar,

 

to other types of collateral include precious metals such as gold and silver as well as commodities such as oil,

 

but the majority of today's fair collateralized stable coins use dollar reserves,

 

now independent custodians manage such results which are audited on a regular basis to ensure that the essential compliance is met tether and true usd are popular cryptocurrencies that are backed by $ deposits & have the same value as a single  US$.

 

2 - Crypto collateralized stablecoins

 

Stable coins that are crypto collateralized are backed by other cryptocurrencies,

 

because the reserve cryptocurrency may be volatile such stable coins are over collateralized,

 

which means that a larger number of cryptocurrency tokens are keep as a result for releasing a smaller number of stable coins.

 

3 - Non-collateralized or algorithmic stablecoin

 

Now this don't have any reserves but they do have a working mechanism to keep the price table,

 

similar to that of a central bank the dollar pet base coin for example employs a consensus method to increase or reduce token production based on demand.

 

now such practices can be compared to a central bank producing bank notes to sustain fiat currency valuations,

 

possible to achieve this by developing a smart contract on a decentralized platform,

 

that can execute independently.

 

3 - Stable Coins vs Other Cryptocurrencies

 

The first one is it is possible to accurately predict fluctuations in the value of stablecoin.

 

on the other hand it is difficult to anticipate the trend in the value of other cryptocurrencies.

 

the second one is stable coins are centralized as they are maintained by independent custodians.

 

on the other hand cryptocurrencies are decentralized.

 

the third one we have is stablecoins values remains constant at one dollar.

 

cryptocurrency on the other hand has a price range depending on its performance in market capitalization.

 

and the fourth one is stablecoin price remains constant making them non-volatile,

 

cryptocurrencies on the other hand have a lot of insecurity making them extremely unpredictable and highly volatile.

 

4 - Best Stablecoins According to Market Capitalization

 

Tether with the market capitalization of 79.5 billion dollar,

 

Usd coin with market capitalization of 53.5 billion.

 

Binance usd with market capitalization of 18.3 billion dollar,

 

Terra usd where a market capitalization of 13 billion,

 

Die with market capitalization of 9.7 billion dollar,

 

True usd withmarket capitalization of 1.5 billion dollar,

 

Pax dollar with market capitalization of 947.4 billion dollar,

 

Neutrino usd with the market capitalization of 493.9 billion dollars.

 

 

5 - Why Are Stablecoins So Important

 

Stable coins are devoid of the volatile nature of non-pet cryptocurrencies,

 

while retaining some of their most valuable properties like,

 

stable coins are open global and available to everyone on the internet 24 7.

 

They transport data quickly cheaply and very securely,

 

and they are programmable and digitally native to the internet.

 

6 - What Can You Do With These Stable Coins

 

First is cryptocurrencies like bitcoin and ether have a lot of volatility,

 

sometimes even by the minute buyers and sellers can have confidence,

 

that the value of their tokens will neither grow nor fall unpredictably in the near future the asset is linked to a more stable currency or say stable coins.

 

The second one is stable coins can be held without a bank account and a simple to transfer the value of stable coins may be easily moved around the world,

 

even to countries where the us dollar is difficult to come by or where the local currency is volatile.

 

coming to the third one is there are several simple ways to earn income on a stable coin investment which is often higher than what a bank would offer.

 

so for the fourth one we have with transfer fees of less than one dollar people have sent as much as a million dollar worth of usdc.

 

and the fifth the last one is stable coins like usdc is a wonderful alternative for transporting money around the world,

 

because of their quick processing & cheap transaction fees.