The stablecoins or stable cryptocurrencies are a type of digital asset that maintains its matched price with that of another asset. In general, the chosen reference is the American dollar: that is why they are also known as crypto dollars.
The weak point of cryptocurrencies?
Blockchain-based digital currencies sparked a revolution in the monetary system, as they gave users full control of their funds, without dependence on banks, governments or intermediaries.
But not everything is flowers in the world of digital assets: in an open, speculative market with little regulation, every day the price of a certain crypto can undergo severe variations.
These movements are known as price volatility, and it is one of the elements that makes the crypto ecosystem a high risk investment market.
What problems does volatility bring?
It is true that this variation in prices brought many investors closer to the field of crypto assets (in the search to obtain profits from these changes), but it is that same volatility that warns against large-scale adoption of digital currencies.
Is that very sudden changes can override predictability and cut back on practicality of using cryptocurrencies as a means of payment: if I don’t know how many satoshis (the minimum unit of bitcoin) a coffee costs me, How can I plan my economy?
Both for consumers and for sellers of products and service providers, strong price variations bring insecurity and unnecessary risk.
There are more conservative investors and users who need to protect their capital more than generate an immediate return. For it, they require predictability, and that’s where stablecoins came into play.
What are stable cryptocurrencies
stablecoins they tie their price to that of other more traditional and less volatile assets. The most common is the US dollar, but there are also cases like Paxos Gold, paired with the price of gold.
Similarly, there are examples such as ICD, which in addition to its parity with the dollar it is also used as a backing for ether, the cryptocurrency of the Ethereum network.
USD Tether or USDT is the most famous of cryptocurrencies, although throughout its history it suffered some liquidity and backing drawbacks.
USD Coin, also known as USDC, it is a digital currency developed by renowned companies in the crypto world, whose value is adjusted to that of the US dollar. That is 1 USDC equals one dollar. USD Coin is a network that is permanently audited.
Other cases are those of TrueUSD (TUSD) Y Gemini Dollar (GUSD), a stablecoin that works according to New York banking law, which also licenses this crypto.
Are you interested in knowing more about stable cryptocurrencies? So you can’t miss our Stablecoin Guide.