Introduction to Stablecoin

Introduction to Stablecoin

Our beloved digital assets got traded for fiat currencies. This was when the crypto world started. This means that people bought cryptocurrencies. All in hopes of selling them later for real-world money at a higher price. 

To do this, traders usually look for stablecoins pegged to fiat currencies. Then offer limited price fluctuations to reduce risks for traders further.

In this article, we will discuss what Stablecoins are and how they work. As well as some of the most popular ones that consumers use.

What is Stablecoin?

A stablecoin is a digital currency pegged to a stable asset, like the U.S. dollar or the Euro. For example, a stablecoin could try to be worth $1 and get backed by a U.S. dollar that you trust is worth $1. 

The trust comes from a digital ledger where the assets, like dollars, get recorded. The concept behind stablecoins lets people use digital assets for daily transactions. 

Traders could use digital assets to buy other goods and services. This is to store value and hedge against volatility. 

Consumers could use stablecoins to avoid the volatility risks of using cash. All the while, merchants could accept them. This is to avoid the risks of holding large amounts of untrusted funds.

Introduction to Stablecoin

How Does Stablecoin Work?

You first need to know what asset is backing the stablecoin. For example, USD-pegged cryptocurrencies are getting backed by U.S. dollars. 

The stablecoin system is a way for cryptocurrency to link to a real-world asset. The asset could be as simple as a promise to convert dollars to cryptocurrencies. 

Or, it could be something like a U.S. Treasury bond, a debt owed to the federal government.

Pros and Cons of Stablecoin

Pegged cryptocurrencies are significant because an asset backs them. That means they’re very much like cash and don’t have the volatility associated with digital assets. 

They’re also a lot safer because an asset backs them. That’s one of the benefits of stablecoins. 

But, USD-pegged cryptocurrencies are much more liquid than other types of stablecoins. That means they can get converted to any amount at any time. 

That’s not the case with other types of stablecoins, which are getting backed by a specific amount of assets.

Another thing to remember: 

Some people fear that the U.S. government will ban cryptocurrencies. 

They’re worried that the ban will affect the USD and make it less valuable. That, in turn, could lead to higher USD-pegged cryptocurrencies.

Top 3 Most Popular Stablecoins

Their market caps range from $2.5 billion to $15.5 billion. These are the most popular stablecoins:

  1. Tether: USD-backed cryptocurrency 
  1. Dai: A trustless, decentralised stablecoin 
  1. Paxos: A smart contract-based stablecoin. These ten cryptocurrencies are most famous for stablecoins. 

Bottomline

Stablecoins are a type of cryptocurrency designed to keep their value stable. If a cryptocurrency has too much volatility, it’s hard to use it for everyday transactions. 

This is why stablecoins are popular among traders. All who want to use digital assets for everyday transactions. 

What’s excellent about stablecoins is that they’re pegged to the U.S. dollar. That means they don’t have as much volatility as other cryptocurrencies. Another great thing about stablecoins is that real-world assets back them. 

That means they’re a lot safer than cryptocurrencies. Such as Bitcoin and Ether, which have no backing. Stablecoins are an essential part of the digital asset ecosystem. 

They let people use digital assets for everyday transactions. All without worrying about price volatility.
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