Stablecoins are a form of cryptocurrency. But this one is created for the stability of the currency. Because cryptos are not stable, that’s why Stablecoins have come that have actual assets, money, and commodities backing them up.
What Is Stablecoin?
It is a cryptocurrency but more stable than other currencies. However, the cryptocurrencies that are linked with other coins, assets, commodities, or currencies for more stability are Stablecoins. Noe, Stablecoins are linked with metals, commodities like gold, and currencies like the US dollar. That’s why it has a stable value and use. Now, this crypto has a good potential that is because cryptocurrencies like Bitcoin, Ethereum, and others don’t have real-life existence or linked with financial institutions or commodities, but Stablecoin does.
What Are the Types of Stablecoins?
There are four types of Stablecoins available, which are:
Fiat-Collateralized Stablecoins
The stablecoins that are backed by a monetary system are fiat-collateralized Stablecoins. However, these are backed by other major currencies like Euro, the US dollar, and others. At the same time, this digital currency has a 1:1 ratio. I mean, Stablecoin is equal to one unit of money.
Crypto-Backed Stablecoins
The Stablecoins that are backed by crypto coins are called crypto-backed Stablecoins. These types of digital assets are linked with other crypto coins like Bitcoin, Ethereum, and others as well.
Commodity-Backed Stablecoins
There are also many Stablecoins available that are backed by many commodities. For example, some stablecoins are baked by various precious metals like gold. One can back the Stablecoins by depositing gold.
Algorithmic Stablecoins
The last one is algorithmic Stablecoins that are not collateralized with any other commodities or currencies at all. Instead, they are linked with computer algorithms. These type of Stablecoins are controlled and managed by computer algorithms and doesn’t have real-life existence.
Why use Stablecoins?
Volatility
We all know that traditional cryptos like Bitcoin, Ethereum, and others are highly volatile, and their prices fall and rise extremely faster and even in minutes sometimes. But it doesn’t happen with Stablecoins. That is because it’s backed by other commodities and currencies, so it’s more stable and less volatile.
Simple to Retain
It is extremely easy to have Stablecoins that is because you will be able to easily buy them from the internet. At the same time, you won’t need to go through the banking process or any bank at all besides, since Stablecoins have an equal value that is backing the Stablecoin. So, you will be able to transfer the value readily in any place on the planet. At the same time, you also will be able to use this digital asset where you won’t find the US dollar.
Easy transfer
The transaction process of Stablecoins is extremely simple. And you won’t have to go to any institutions. At the same time, the transaction fees are low, which is under a dollar.
Global Audience
Since Stablecoins are virtual but have real assets backing them up. So, you can transfer virtual money to any part of the world faster and with fewer fees. And that virtual money has the same value as the asset that is baking the virtual money. For example, 1 USDC has a value of 1 USD.