What is a stablecoin?
8 April 2022 by Catherine Woods
Reading time 6 min
Altcoins are any digital currency that is not Bitcoin. Sometimes it is added that it should not be Ethereum. Altcoins have many forms of cryptocurrency, including stablecoin. Altcoin, stablecoin, is the most affordable asset used for crypto transactions related to storage and trading. Stable coins might be transferred, invested, kept.
The price of the cryptocurrency can be attached to assets. In this case, we can talk about a stable coin. So stablecoins are usually pinned to a currency. USD stablecoin, GBP stablecoin, EUR stablecoin are very common now. Although the use of the Euro stablecoin is limited by the stricter EU norms. It should be noted that crypto stablecoins have large amounts of crypto tokens in reserve, which lowers their volatility. They have over-collateralization.
A considerable part of the stablecoin market has to deal with dollar stablecoins. But it is possible to use exchange-traded commodities as the basis of stablecoin or collateral. Such coins are tied directly to the value of gold or silver. The appearance of tokens such as silver stablecoin (Silver Coin (SC), SilverToken (SLVT)) and gold-backed stablecoin (Digix Global (DGX), Tether Gold (XAUT)) has expanded the existing varieties of digital assets.
In addition, algorithmic stablecoins are a specific type of stablecoin that has no reserve. A smart contract or algorithmic mechanism maintains a stable price to keep its peg. In this way, control of the supply is automated.
For example, Terra UST has been created as one of the main currencies of the Terra blockchain and is an essential part of the functioning of the network. This token is one of the top stablecoins of this type.
By the level of third-party control, there is a decentralized stablecoin and a centralized stablecoin. The advantages of decentralization allow DeFi stablecoin, such as Dai (DAI), to be safe and secure. As for a centralized system in the crypto world, such stablecoin examples include Tether (USDT), Binance USD (BUSD), USD Coin (USDC).
The DeFi Watch platform displays complete data of stablecoins, including an extensive list of stablecoin pools.
After searching for the best stablecoin, investors wonder: "How do I get it?". Investors get stablecoins by buying such digital currency on a stablecoin exchange or mint novel stablecoins by paying the necessary deposit. So the issuing company is responsible for the reserve or collateral as fiat currency (US dollars, EURO, etc.), crypto tokens, other physical assets (gold, silver, etc.).
Stablecoin meaning consists of a safe way to keep earning digital assets from sharp price fluctuations and other financial risks. A token's price can jump in one moment and collapse in the next. For this reason, stablecoins are so important for each investor. They oppose the volatility of digital assets. A stablecoin enables investors to lock in profits and losses by transferring value into a stable condition. In other words, stablecoin helps investors move out their assets to the fiat ecosystem from the DeFi space.
But that's not all. Investors can stake stablecoin to earn passive income. When an investor locks such digital assets and gets rewards, it is called stablecoin staking. This is a way to gain steady profits without sharp fluctuations in the prices of assets. The amount of the reward is based on components such as a particular platform, pool, lockout period, the number of blocked assets.
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- A digital currency as a form of a stable coin has particular advantages:
- low volatility by attachment to a resource with a stable price,
- fast transfers,
- clear transactions,
- customer data security,
- financial availability,
These positive characteristics allow stablecoins to be used as an alternative to money by every member of society.
Stablecoin pools are also seen on the DeFi Watch. At the time of writing, you can find the projects with average returns of up to 18% on our DeFi dashboard, and also select the best pool with stablecoins by using the multistage filter.