What Is A Stablecoin?



Oct 17, 20222 min read

What Is A Stablecoin?

1. What is a stablecoin?

A stablecoin is a type of cryptocurrency that is linked to a "stable" reserve asset, such as gold or the US dollar. In comparison to unpegged cryptocurrencies like Bitcoin, stablecoins are intended to lessen volatility.

2. What can you benefit from stablecoins?

  • Reduce volatility

Cryptocurrencies like Bitcoin and Ether experience significant volatility, sometimes on a minute-by-minute basis. A more stable asset can provide buyers and sellers with the assurance that the value of their tokens won't grow or fall sharply in the foreseeable future.

  • Trade and save assets

Stablecoins are simple to retain and transfer, and they don't require a bank account. The value of stablecoins may be readily transferred around the world, especially to locations where the U.S. dollar may be difficult to find or if the local currency is unstable.

  • Earn interest

On investment in stablecoins, there are simple ways to generate interest that is often more than what a bank would provide.

  • Transfer money with low cost

With transfer fees of under a dollar, users have sent stablecoins valued up to one million dollars.

  • Send internationally

Fast processing and low transaction fees make stablecoins a good choice for sending money anywhere in the world.

3. Current popular stablecoins

  • Tether (USDT)

Tether is a Stablecoin that appeared in 2014. In recent years, it has been one of the most used stablecoins in the crypto space. Tether is a stablecoin collateralized by fiat currency. The main feature of this stablecoin is its ability to be traded against US dollars. One tether can be exchanged for one US dollar. With its ability to withstand market manipulation in the digital sphere, this stable currency represents the pinnacle of low-risk investing.

  • USD Coin (USDC)

USDC is a digital currency backed by US dollar assets. With the value of one USDC backed in a 1:1 ratio to the value of one US dollar. The value of USDC is designed to remain stable, making USDC a stablecoin. This stablecoin has various applications in the cryptocurrency industry and is commonly used in decentralized financial processes.

  • Binance USD (BUSD)

Binance USD (or BUSD) is a U.S. dollar stablecoin issued by crypto exchange Binance and blockchain company Paxos Trust. Similar to USDC and tether (USDT), the BUSD stablecoin attempts to maintain a price of one U.S. dollar at all times through its backing of fiat reserves.

  • Dai (DAI)

Dai is a stablecoin that is supported and preserved by Ethereum-based money. These stablecoins are initially stored at the MakerDAO warehouse and afterwards utilized as security by users when using Dai stablecoin. MarketDAO safeguards the stablecoin by connecting it in a 1:1 ratio to the US dollar since its value surpasses that of the latter. The Dai market is more volatile when compared to Tether, however, it is still quite efficient.