Stablecoins have many of the same advantages as other cryptocurrencies, but they differ fundamentally in that, as their name suggests, they are stable.
The ability to “store” the value of funds in a way that eliminates volatility is crucial in a market where asset prices move dramatically. This method increases the number of shops that may take cryptocurrencies without worrying about price volatility, in addition to being available to cryptocurrency traders.
Stablecoins are typically correlated with fiat currencies that are extensively utilized, such as the US dollar or the euro. Certain ones are dependent on commodities like gold.
How do stablecoins work?
They act as a lifeboat for many cryptocurrency traders who wish to hedge their holdings without taking a loss in fiat money. This works well, particularly in bad markets or when the profit is kept at FIAT value. After all, FIAT, not Bitcoin, continues to be the primary form of currency used worldwide.
Using stablecoins in decentralized finance is also projected to grow significantly (DeFi). DeFi offers a public blockchain-based financial system as an alternative to the ones that are currently in place.
This idea has gained popularity recently, and the number of initiatives creating innovative products—like peer-to-peer loans—has sharply increased.
The Trio of Stable Coin Types
There are three distinguishable categories of stablecoins, to put it broadly.
- FIAT-Backed Centralised Stablecoins
The fiat currencies that are kept in bank accounts provide a 1:1 backing for these. Examples include Gemini USD (GUSD), Tether (USDT), USD Coin (USDC), and so on. They are centralized because a central organization—a business, a bank, or even the government—launches and oversees them.
- Crypto-Backed Decentralised Stablecoins
These stablecoins are a relatively new breed controlled by the network’s users rather than a single central authority.
The stablecoin DAI from Maker DAO is one instance of this. A specific quantity of cryptocurrencies, such as Ethers, can be pledged by users as security when borrowing DAI, which is backed by the US dollar.
- Algorithmic Stablecoins
These are still somewhat recent. They rely on algorithms to maintain their pricing because they don’t have any collateral supporting their system.
The Top Stablecoins Based on Market Capitalization
While there is a wide variety of stablecoins available, certain ones are more popular top stablecoins in cryptocurrency than others in terms of volume and usage. The top stablecoins by market capitalization as of July 2024 are displayed in the pie below.
USDT, or Tether
When it comes to stablecoins, Tether (USDT) has been the clear market leader since its founding in 2014. Tether exchanges fiat money for digital currency, with a 1:1 price correlation to the US dollar. “Every tether is always 100% backed by the company’s reserves,” states the official website. Traditional fiat currencies and their counterparts in cash are included in these reserves. One of the greatest USDT wallets should be used if you want to keep your USDT safe.
It’s important to note that several networks are minting USDT. These include TRON, Algorand, Ethereum, EOS, and OMG network as of this writing. Tether Limited, the operator of USDT, is intimately linked to iFinex, the parent firm of the well-known exchange Bitfinex.
The stablecoin has seen a great deal of discussion because of this aspect. Indeed, in 2017, the CFTC issued subpoenas to Bitfinex and Tether for what might have been caused by the latter’s purported manipulation of Bitcoin’s price and lack of security checks.
Right now, it costs $0.00.
- Market Capitalization: $
- Date of Launch: November 2014
- Tether Limited, British Virgin Islands, launched the
- Blockchain: Liquid, EOS, Tron, Ethereum, and Omni
USD Coin (USDC)
The US cryptocurrency exchange Coinbase introduced USD Coin (USDC), a stablecoin, along with its trading desk and OTC Circle. It is intended to be fixed at a 1:1 ratio to the USD. Fun fact: Customers who maintain USDC on their exchange accounts receive incentives from Coinbase.
As to the official Coinbase website, every USDC is supported by a single US dollar that is stored in bank accounts.
The cryptocurrency is an Ethereum blockchain-powered ERC-20 token. It may be kept by users on wallets that are compatible, including MyCrypto and MyEtherWallet.
- Right now, it costs $0.00.
- Market Capitalization: $
- October 2018 is the launch date.
- Introduced by: Circle, Coinbase
- Ethereum on the blockchain
Why The World Will Be Changed by Stablecoins?
Due to its digital, programmable, and blockchain-based nature, stablecoins provide a variety of advantages. In addition to their stability and peg making them safe, some of the additional benefits are as follows:
- International Payments
Stablecoins may be transferred over the Internet in the same way as Bitcoin, regardless of nations, banks, or middlemen. Because they are conducted on the blockchain, the transactions are direct, unchangeable, and immune to censorship or blocking.
- Minimal Fees
Stablecoins’ peer-to-peer structure and lack of middlemen also significantly reduce transaction costs compared to conventional fund transfers.
Stablecoin transactions differ from standard bank transfers or credit card payments in that they don’t impose upfront fees or commissions.
- Quicker Exchanges
Transactions based on blockchain operate far more quickly than those based on paper. Verifications and anti-money laundering (AML) procedures are the causes of this, but the absence of middlemen and waiting periods may be a key factor. The money often reaches the recipient’s account minutes after the transaction is started.
- Openness
Public blockchains are used for stablecoin transactions. Regardless of whether they started the transaction or not, users may keep an eye on every one of them. This is not achievable with conventional payment methods, and it offers the much-needed openness that many consumers need.
