What Is A StableCoin? | How StableCoin Work? |Cryptocurrency

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 this.

Basically it is a form of payment that is used to exchange goods and services and there are several types 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.

What is Stable Coin

• A stable coin is a type of cryptocurrency that is backed by reserve assets 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 and security or privacy of cryptocurrency payments as well as the volatility free and stable prices of paid currencies 

Types of Stable Coins

 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.

• Also 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 dollar deposits and have the same value as a single US dollar.

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.

• ETH USD and DAIUSD is tied to the us dollar and used as a reserve

Non-collateralized or algorithmic stablecoin

• They 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 peg base coin for example employs a consensus method to increase or reduce token production based on demand

• such practices can be compared to a central bank producing bank notes to sustain fiat currency valuations.

•  It is possible to achieve this by developing a smart contract on a decentralised platform that can execute independently.

StableCoin vs Cryptocurrency

Stable Coin vs Cryptocurrency

Why stable coins are so important

stable coins are devoid of the volatile nature of non-peg cryptocurrencies while retaining some of their most valuable properties like:

• They  are global and available to everyone on the internet 24 *7.

• they transport data quickly cheaply and very securely

• They are programmable and digitally native to the internet

Uses of  stablecoins

Minimize volatility 

Cryptocurrencies like bitcoin and etherium  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

Trade or save Assets 

•  stable coins can be held without a bank account and are 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.

Earn Interest 

• There are several simple ways to earn income on a stable coin investment which is often higher than what a bank would offer.

Transfer money cheaply 

• with transfer fees of less than one dollar people have sent as much as a million dollar worth of usdc

Send internationally 

• Stable coins like usdc are a wonderful alternative for transporting money around the world because of their quick processing and cheap transaction fees.

Best stablecoins according to the market capitalization