A COMPLETE GUIDE FOR INNOVATORSBusinesses, start-ups, crypto-entrepreneurs, investors, and traders, who track the blockchain industry trends, must have heard the buzz around Stablecoins. For those not already familiar with the term the term “stablecoin” is an entirely different thing than an cryptocurrency. It is, therefore, not similar to bitcoin or other altcoin? It’s different, and that’s why it’s so fascinating!

If it’s not like Bitcoin, then what is a Stablecoin?

When you think about bitcoin, what image comes to thoughts? As a Bitcoin advocate there is a lot of potential however, the one who criticizes will not overlook the issue of “volatility” that comes with cryptocurrency like bitcoin.

Bitcoin offers you a limited time to say that you have the money to buy this item or since its value is fluctuating. It isn’t possible to be sure that it will keep its value. One day the value of it could purchase a car but the next day the only thing you can purchase using it is two pizzas. Just as the late Mr. Laszlo Hanyecz, who was in the news for trading 10,000 bitcoins for two pizzas from Papa John’s on May 22nd in 2010. The volatility of cryptocurrency, such that it is a raging flurry each day, is a snare and one of the major reasons why people hesitate to accept the cryptocurrency.

It was discovered that the urgent need of the moment is the development of a solution to combat the extreme volatility of cryptocurrencies and provide a more solid financial structure in the cryptocurrency market, which is why Stablecoins were born. This article you’ll find out more information on Stable Coin and what are its actual applications.

What is an StableCoin?

The name suggests that the term “stablecoin” refers to a value that doesn’t change. It’s not like it is completely stable but it’s just the same as fiat currencies, or other investments like precious metals and gold.

Stable coins are designed to connect cryptocurrencies benefit and the steady nature of fiat currencies. It’s a cryptocurrency with a value that is tied to the value of a nation’s currency in order to reduce its fluctuation.

The question now is why we require a stable currency.

While cryptocurrencies are international currencies, currencies such as Bitcoin as well as Ether are extremely volatile. The cost of Bitcoin went from $1000 up to $20000 in the course of the year of 2017. Because it’s not sustainable, both users and investors want more stability in the marketplace.

Imagine you are paying $30 for dinner today , and the same amount could be worth $40 next day because the price of the cryptocurrency token increased. Small investors can’t handle that type of fluctuation. Thus, stable coins came into existence as a fresh method to facilitate the process to adopt cryptocurrencies.

You may be wondering why we need to develop fiat-backed crypto tokens instead using fiat currencies.

Despite this form that pegged, stablecoin adheres to the fundamental principles of cryptocurrency., i.e. being independent of any central bank. Decentralized currencies do not need any central authority to build confidence in the system, thus reducing the additional cost involved. Stablecoin acts as an universal blockchain ledger capable of paying for transactions that are confirmed and recorded without interference from any central bank or institution. Additionally, it provides the privacy and security benefits that come with cryptocurrencies, the security and transparency of blockchain transactions, and the convenience of immediate processing, speedier as well as lower costs. It is the ability to be borderless.

What are the various types of StableCoins?

The value of the stable coin is secure because it is tied to a reserve asset, or in other words, an asset that is reserved is the one that backs it. It is based on what type of reserve investment is backing the worth of the stable coin there are four kinds of stablecoins:

• Fiat-backed Stable Coins
• Non-collateralized Stable Coins
• Cryptocurrency-backed Stable Coins
• Commodity-collateralized Stable Coins

Fiat-backed

Fiat stablecoins that have been backed by a fiat currency are crypto-tokens that represent their value in relation to a particular fiat currency. These tokens have their value at a 1:1 ratio.

For instance Tether is a stable coin, and it is tied 1:1 to US dollar. Fiat currency is used as collateral to guarantee an existence stablecoin that is backed by fiat. Therefore, it needs financial custodian and periodic auditing to confirm that the token is secure.

Non-collateralized

Non-collateralized stablecoins have their roots in the idea of a SeigniorageShares system. Seigniorage is the value of the currency and the cost of printing.

They are based on an algorithm that alters the quantity of supply in order to control their price. With smart contracts, stable coins are traded in the event that the price drops below the pegged currency, and additional tokens are offered to the market in the event that their value increases above that of what is pegged.

Cryptocurrency-backed

Cryptocurrency-backed stable coins work similarly to that of a fiat-backed stablecoin. But, they secure the cryptocurrency as collateral, rather than using fiat currencies. For example, Ethereum can be kept as collateral to create a cryptocurrency-backed stablecoin.

They use security guarantees to compensate with the fluctuation of crypto, which can serve as collateral. The stablecoin won’t be dependent on a 1:1 ratio for the collateral crypto.

For instance, if a cryptocurrency-backed stablecoin is pegged to the US dollar, it can be something around $2 peg for each $1 coin issued.

Commodity-collateralized

Commodity-collateralized stablecoins are backed by other types of interchangeable assets like real estate and precious metals. Gold is among the most popular commodities that can be collateralized.

These stable coins are the tangible property of actual worth. They can appreciate in value as time passes, which provides an additional incentive for those to utilize and save these coins.

Using commodity-collateralized stable coins, anyone can invest in real estate properties or precious metals across the world. Usually, investing in these investments is reserved for the elite class of investors. However, stablecoins offer the possibility of investing for everyone all over the world.\

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