Stablecoins continue to gain popularity in the digital asset market. With their help, investors and other market participants could cope with several disadvantages of classic cryptocurrencies.
How stablecoins work
One of the main disadvantages of cryptocurrencies is volatility. Sharp ups and downs discourage many potential investors from using virtual money. Stablecoins are created to solve this problem and bring stability to the cryptocurrency world.
There are many different methods of getting more stable market prices, and today there are three types of stablecoins:
- Backed by fiat money – backed by assets in reserve. It means that behind each stablecoin in circulation there is an equivalent in dollars, which are stored in the bank. For example, a unit of coins such as USDT (Tether), USDC (USD Coin), or TUSD (Trust Token) is backed by the US dollar. The purpose of these coins is to ease investor anxiety about price fluctuations and create a system that is more convenient for day-to-day purchases;
- Backed by cryptocurrency – although the volatility problem is technically not resolved in this case, issuers are trying to eliminate it through so-called overcrowding. For example, a stablecoin value of one dollar is backed by two dollars. The purpose of these tokens is to create a balance between the benefits of decentralization while cryptocurrency reserves absorb the effects of market volatility;
- Secured / Decentralized – not related to reserves, but smart contracts for tracking price fluctuations, issues, and purchase of coins.
Examples of the most popular stablecoins
- Tether (USDT) is one of the most famous stablecoins, pegged to the dollar and with a market capitalization exceeding $ 4 million today. Tether Ltd has never fully proven that its coins are backed by dollars. However, recent changes to the terms on the project’s website suggest that Tether is backed by partial reserves.
- The Gemini Dollar (GUSD) is a project by the Winklevoss brothers that allows users to send stablecoin over the Ethereum network.
- TrueUSD (TUSD). Holders of these stablecoins benefit from solid legal protection through the use of an expo account. This stablecoin has similar Tether features, but in this case, the project focuses on ensuring complete transparency for customers and investors.
How stablecoins solve the volatility problem
Stablecoins are incredibly popular due to their impeccable balance of the benefits of decentralization and the added benefit of predictability. Although some coins fail to maintain the target price levels, which creates some uncertainty around the concept of these tokens, the credibility of stablecoins has not yet been lost. As with other cryptocurrencies, many countries continue to look for methods of regulating stablecoins and increasing market transparency.
Tether’s rivals have learned from the mistakes of this project and practice complete transparency. For example, USDK, developed by blockchain company OKLink and released in June 2019, offers a 1.1 conversion rate and is 100% backed by reserves. For greater transparency, independent audit firms provide monthly reports on dollar reserves.
Stablecoins keep popping up all the time. As trading volumes increase, stablecoins are becoming a very attractive direction to engage people in the cryptocurrency space.
Where to buy stablecoins
A simple and secure option is the StormGain digital asset exchange. This cryptocurrency exchange, unlike other trading platforms on the market, does not collect personal information about its customers. Amid attempts by the authorities to regulate the crypto industry, StormGain’s proposal is especially relevant.
To get started on StormGate, it is enough to go through a simple registration, during which you do not need to provide personal information. The refusal to collect data on the part of StormGain allows you not to worry about problems with the law against the background of excessive attention of regulators to operations with cryptocurrencies. Users of most other popular crypto trading platforms do not have this option.
Another advantage of the exchange is the availability of bonuses. For example, for each newcomer, StormGain transfers 25 USDT to replenish the deposit.
Conclusion
Stablecoins are a promising area in the expansion of cryptocurrencies. So far, none of the teams have managed to create a stablecoin that would gain universal recognition and popularity. Perhaps the reason is that none of the created coins have met the high requirements for decentralization, security, and a solid technical foundation so far. However, time will tell whether a project will appear in the world of blockchain and cryptocurrencies that will meet all the requirements of a high-quality and promising stablecoin.
