What is Stablecoin and How is it better than Bitcoin

Alan Joseph Alan Joseph
Apr 17, 2021 5 min read
What is Stablecoin and How is it better than Bitcoin

Stablecoins are gaining popularity in the recent years. As of May 2020 Stablecoins, were worth USD 10 billion. In certain countries like Brazil, people are preferring stable coins to their national currencies. That is during uncertain economic conditions. Let’s look at the below article for the meaning of stable coins and is stable coins better than bitcoins.

What are Stablecoins?
List of Stablecoins
Real-world Applications of Stablecoins
Why is it better than bitcoin?
FAQ

What are Stablecoins?

Stablecoins are a new group of cryptocurrencies. The name itself gives the meaning which says stable. Stablecoins are cryptocurrencies that attempt to offer stability in the price movement. They are backed by a reserve asset.

It is a cryptocurrency that is tied to an outside asset such as U.S Dollar, Gold, or any other asset to stabilize the price. Stablecoins have gained fiction as they attempt to offer the best of both the worlds such as the privacy of payments of cryptocurrencies and the instant processing plus the volatility-free stable valuations of fiat currencies.

The popularity of stable coins has risen so far that the headlines of the crypto market in recent months have Stablecoins in it. They are primarily developed to minimize the volatility of the price.

List of Stablecoins

Fiat-collateralized Stablecoins

This type of Stablecoins is the ones which have its underlying value derived from a fiat currency or in simple words the Stablecoins are pegged towards certain country’s currency such as U.S Dollar, Euro, Yen, etc.

One of the well-known fiat collateralized stable currency is Tether which is shortly known as USDT. This Stablecoin is pegged to the value of the U.S dollar in the ratio 1:1. This means that 1 Tether is equal to the value of 1 U.S Dollar.

Another example of a well-known Stablecoin is Gemini which is shortly known as GUSD. This Stablecoin is pegged to the value of the U.S dollar in the ratio 1:1. This means that 1 Gemini is equal to the value of 1 U.S Dollar.


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Non-Collateralized stablecoins

Non-collateralized Stablecoins are not backed by any asset classes. These Stablecoins run on certain algorithms which will manage the supply and demand of these coins and keeps the prices stable. Some examples for Non-Collateralized Stablecoins are CarbonUSD which is also known as Carbon and kUSD which is also known as Kowala.

Types of Stablecoins
Types of Stablecoins

Commodity-Collateralized Stablecoins

Some Stablecoins are backed to certain precious metals such as gold, metals, or commodities such as oil. These Stablecoins are known as commodity-collateralized Stablecoins.

One of the well-known commodity-collateralized Stablecoin is Digix that has its short form as DGX which is backed by the commodity Gold. This means that 1 DGX is equal to 1 gram of Gold on the ETH network.

One of the other examples of commodity-collateralized Stablecoins is Tiberius Coin which has its short form as TCX. The Stablecoins are backed by the combination of 7 different metals which is commonly used in the development of hardware technologies. The idea behind pegging it towards the 7 metals is as these metals are extensively used to make technology will indirectly increase the value of TCX.

Crypto-Collateralized Stablecoins

These are stable coins which are pegged against different cryptocurrencies. Crypto-collateralized Stablecoins will always be in the 1:1 ratio through over-collateralization.

BitUSD is a well-known Stablecoin which is crypto-collateralized token, that is collateralized towards a cryptocurrency named Bitshares.


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Real-world Applications of Stablecoins

Day-to-day currency

Stablecoins can be used as fiat currency that can be used as a mainstream payment. It has an additional benefit of being a virtual coin. It is legally backed and secured as well. These are also very useful for overseas payment as no conversions of fiat currencies and can be used irrespective of the country or place.

In streamlining P2P payments

You can use Stablecoins as an ideal payment option for loan payments, rent payments, subscriptions and more as it is irreversible, traceable and transparent.

Protection from local currency crashes

On an average the prices of goods keep doubling every few weeks. Stablecoins are used as a replacement to maintain fiat currencies from crashing in value.

Stablecoins will offer notable solution to all these problems by allowing them to quickly exchange their fiat currency into a stable currency. Thus, it prevents them from further price drops.

Why is it better than bitcoin?

Stablecoins provide stability and it is one of the major reasons why it is better than bitcoins as the world looks at stability. Stablecoins also ensure faster transfer of money across different locations. Stablecoins can also replace fiat currencies in certain countries where their currencies are unstable.


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FAQ

What is an example of a Stablecoin?

Tether (USDT) is a Stablecoin, So named because it β€œtethers” itself to the value of the USD, Tether is the most well-known Stablecoin in the crypto world. It's backed by gold, traditional currency and cash equivalents.

What is Stablecoin used for?

Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity's price such as gold.

Can Stablecoins increase in value?

Fiat-backed stablecoins are considered to be the most stable of stablecoins, but this stability doesn't make them a very profitable long-term investment and their value is unlikely to increase significantly over time.

Conclusion

We may see stablecoins demand increasing in the future and will even be able to see much more stablecoins coming up in the future.

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