Cryptocurrencies like bitcoin and ether have a variety of advantages, one of which is that they do not require trust in a third party to send payments, making them accessible to people all over the world. Meanwhile, you may check out the best blockchain software development company.
However, one significant disadvantage is that cryptocurrency prices are volatile and tend to vary wildly. This makes them difficult to use by regular people. People, in general, demand to know how much their money is worth in a week’s time, both for their security and their livelihood.
The unpredictability of cryptocurrency contrasts with the relatively constant pricing of conventional money like US dollars or other assets like gold. Currency values, such as the dollar, fluctuate over time, but cryptocurrencies, which increase and decrease in value on a daily basis, have more dramatic fluctuations.
So to solve the issue of dramatic fluctuations comes Stable Coins into the picture. Stable coins are a type of crypto assets that are not as volatile as Bitcoins and others.
What are Stable Coins?
Stable coins attempt to mitigate price volatility by connecting the value of cryptocurrencies to more stable assets, such as fiat currencies. Fiat currency, such as Dollars or Euros, is a government-issued currency that we’re all used to utilizing on a daily basis. You may also check Stable Coin development services company.
Typically, the entity behind a Stable Coin will set up a “reserve” where the asset or basket of assets backing the Stable Coin is securely stored — for example, $1 million in an old-fashioned bank (the kind with branches and tellers and ATMs in the lobby) to back up one million Stable Coin units.
Stabilized coins have become the primary source of liquidity in the bitcoin market since they are designed to maintain a consistent price. Traders and investors use the stable currency to acquire other cryptocurrencies on exchanges that do not take fiat currency, and they use the stable currency to store funds when the price of other crypto assets moves considerably (ie, hedging).
Advantages of Stable Coins:
Stable currency supporters believe that in the future stable currency would eventually be used for financial transactions such as loans, remittances, wire transfers, and payments, resulting in a long-term commitment in the field of cryptocurrency that lowers transaction costs, speeds up transactions, and allows transactions. It’s becoming more practical.
Although some analysts and investors argue that the use of stable money in addition to transactions is unlikely owing to the lack of a financial network that can accept and use cryptocurrencies.
Stabilizing the currency, on the other hand, solves a problem that many of the world’s major cryptocurrency exchanges face: these exchanges have no relationship with banks, which means that investors can’t use dollars, Euros, or other government-backed currencies to buy the cryptocurrency they want to trade. (Many banks avoid cryptocurrency transactions because they are concerned about money laundering risks associated with digital currencies.)
We have listed some of the popular Stable Coins below for you.
Diem– Diem (previously known as Libra) is a Stable coin under development that was designed by Facebook, the world’s most influential social networking site. Despite the fact that Libra is yet to launch, it has had a greater psychological impact than any other StableCoin.
Tether– Tether (USDT) is one of the oldest Stable Coins, that was created in 2014 and is still among the most popular. By market capitalization, it is one of the most valuable cryptocurrencies. The main application for USDT is to move money swiftly between exchanges in order to take advantage of arbitrage opportunities when the price of cryptocurrencies differs on two exchanges; traders can profit from the difference.
Dai– Dai is a Stable coin on the Ethereum blockchain that runs on the Maker DAO protocol. Dai, which was founded in 2015, is a cryptocurrency that is pegged to the US dollar and backed by ether, the Ethereum token. Maker DAO, unlike other Stable Coins, wants dai to be decentralized, which means there will be no single authority in charge of the system. Instead, Ethereum smart contracts — which encode immutable rules – do this function.