Stablecoins are cryptocurrencies aimed
at having a stable value. They are different from Bitcoin and the main altcoins,
such as Ethereum, XRP and Litecoin, for which 10% floats are not uncommon in
less than 24 hours.
As the demand
for less volatile crypto assets grew, technology and fintech companies around
the world attempted to create more “stable” coins. As these crypto assets have
the lowest risk of devaluation with all the added benefits of cryptocurrency,
economic agents feel more secure to make transactions, take out loans, and keep
this type of currency as a reserve of value.
In addition, exchanging stablecoins to
other cryptocurrencies is much easier than exchanging them to fiat money. For
example, if there is a negative fluctuation in the value of Bitcoin, it is
possible to exchange it to a stable currency of your choice in just a few
minutes. Additionally, if the BTC values go up, the reverse process is also
very simple – and Crypto InterCambio can help you it!
There are multiple ways for
stablecoins to achieve stability. Most are anchored to another asset, such as
fiat currencies, commodities, and even other cryptocurrencies. There are also
those that are not pegged to any other assets, stabilized only by algorithms.
Let’s take a look at each of these types of stablecoins.
The types of stablecoins
Stablecoins anchored to fiat money
The main stablecoins are backed by
fiat currencies – such as the US dollar (USD), the euro (EUR) and the yen
(JPY). Between cryptocurrency and real currency, a fixed parity is established
– x units of stablecoins cost y units of fiat currency.
The big drawback of this type is that
unlike the most famous altcoins, these cryptocurrencies are released in a centralized
way. The company owns the blockchain, and it must hold the amount of fiat
currency corresponding to the amount of stablecoins it releases to the market. Some
Tether (USDT) – created by Tether Limited, it is the most well-known stablecoin. Tether is anchored to the US dollar;
EURO Stasis (EURS) – another widely used stablecoin, anchored to the Euro;
Brazilian Digital Token (BRZ) – anchored to the Brazilian Real.
Stablecoins anchored to commodities
Stablecoins are sometimes anchored to
a certain number of commodities. The logic is similar to that of crypto being
anchored to fiat currencies: each coin has a fixed parity at a quantity z of a
product such as oil, gold or copper.
The advantage of this type of stable
currency is that its value is not linked to Central Bank policies, but to the
value of raw materials (which may vary depending on the global economic context).
However, they are still centralized cryptocurrencies, issued by the companies
that own the blockchain, which also store the commodities to guarantee the coin’s
Some of the most famous stablecoins
of this type are:
DigixDAO (DGX) – one of the oldest stablecoins, DGX is anchored to gold. 1 token = 0.1 gram of gold (stored in the company’s deposit);
PAX Gold (PAGX) – another stable currency that is based on the price of gold;
Petro (PTR) – is the official cryptocurrency of the Venezuelan government. It is backed by the country’s oil barrels.
Stablecoins anchored to other cryptocurrencies
Unlike other stablecoins, this
innovative type of stable cryptocurrency has a decentralized structure. Instead
of being linked to a fiat currency or a certain amount of raw materials, it is
anchored to other cryptocurrencies.
There are a few cryptocurrencies of
this type. The most well-known example is Dai:
Dai (DAI). Anchored to Ethereum (ETH), it has a fixed value of 1 DAI = 1 USD. If the value of DAI exceeds 1 USD, the algorithm offers economic incentives to Ethereum users to exchange the crypto for DAI, thus lowering its price; if the stablecoin value is less than 1 USD, incentives are offered to exchange DAI for ETH, increasing its price.
Stablecoins not anchored to another asset (“seigniorage”)
Known as “seigniorage”,
this type of stablecoin is not backed by any other assets. Its operating
mechanism is quite similar to a central bank of a country: a fixed value is established
(for example: 1 cryptocurrency = 1 euro); if the value deviates from the
established price, the company that owns the currency issues or buys the coins
in circulation, so that the stablecoin returns to its established price.
Some examples of this type are:
NuBits (USNBT): the most popular seigniorage stablecoin. Has the price gone up? The algorithm will create NuBits and sell them in the market so that the value falls. Has the price declined? The algorithm will destroy tokens to increase their value.
Basis – one of the most important seigniorage stablecoins. It reached the market value of 133 million dollars; however, the developer locked up activities for regulatory reasons.
Conclusion: what is the future of
Possessing both the benefits of
blockchain technology and the greater stability, stablecoins promise to
continue to gain more traction as well as to continue to popularize crypto. As a
stablecoin’s value does not fluctuate too much, it can be safer and easier to
use for commercial transactions, services, investments, etc.
Some stablecoins (like Tether) are
already well established among crypto users, but the fact is that this type of
crypto assets still has a long way to go. Governments and companies around the
world have studied the possibilities of creating their own centralized stablecoins
as a way to take advantage of this unique moment in monetary history and
prepare for the future changes in the economy.
At the same time, decentralized stablecoin
projects are also moving forward. The case of DAI is exemplary: by being pegged
to another famous cryptocurrency (the Ethereum), it quickly became popular
among crypto users. It showed resistance even in the time of severe crisis: in
2018, when the price of ETH collapsed from $1,400 to $400, the DAI system
In the coming years, it is very
likely that the two types of stablecoins – centralized and decentralized – will
coexist and compete in the cryptocurrency market alongside the altcoins.
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