If you are planning anything about putting your money in cryptocurrency, how much do you know about stablecoin? Then, it is high time to have in-depth knowledge about Stablecoin before stepping into the crypto market. Hence, to explain in brief, it is another significant cryptocurrency available for trading in e krona. Its value is interlinked with the assets which we use in real life. Thus, one example of an asset can be US dollar. So, this article will guide you to get the best information about Stablecoin. Therefore, you will learn about its usage, benefits, and many more. So, read below to know about it thoroughly.
What is the meaning of Stablecoin?
However, Stablecoin is an important term for a specific type of cryptocurrency. As said, its value is determined by assets in our real life. It can be a fiat currency or even gold that stabilizes its price. Most cryptocurrencies, for instance, Bitcoin, don’t require any centralized institution to monitor the transactions. That’s why it is able to provide secure transactions. Moreover, it also has a large drawback, i.e., Bitcoin and different types of cryptocurrencies are highly unpredictable because they fluctuate very frequently.
Therefore, Stablecoins handle these fluctuations by binding their value with stable assets. Also, the organization of Stablecoin will establish a “reserve.” In this reserve, these assets are stored with protection to support the Stablecoins. Therefore, the money stored in those reserves acts as a collateral or security. So, if any holder wants to cash its token, they can do it without hassle.
How Does Everything Work in Stablecoin?
Hence, various sources support stablecoin. It includes the fiat or traditional currency as well. These Stablecoins can be connected with a centralized system or maybe not. Thus, this support can affect the fluctuation and the level of risk.
Stablecoins backed with Crypto
These stablecoins are mainly supported by the assets of crypto. This type of stablecoin is overcollateralized, which helps to protect its value. However, they have lesser stability when compared to those backed by the fiat currencies. So, it is always necessary to monitor the performance of stablecoins.
Stablecoins backed by Fiat Currency
Furthermore, you can use the dollars and other fiat currency as well to buy these stablecoins. Also, you can easily redeem these with the original currency. Also, stablecoins have small fluctuations in their price in comparison with other cryptocurrencies. However, it also doesn’t mean that it is completely safe. So, make sure that you track every change and take the right step.
Stablecoins backed by Precious Metals
Hence, this type of stablecoin uses precious metals such as gold and others for maintaining stability. Also, they have a centralized system that can be a drawback. Still, it protects the stablecoins from the volatility rate. One of the popular stablecoins that is backed by precious metals like gold is Digix. Hence, you can invest here without much hassle of storage and transportation.
This type of stablecoin is not supported by any kind of asset. Hence, they are also known as non-collateralized. This is why sometimes it isn’t easy to understand. They mainly use the computer algorithm to control the fluctuation. Also, they achieve their stability through a strong mechanism like central banks.
Have a look at some of the popular stablecoins.
The Dai stablecoin is available in the blockchain of Ethereum. It was created in the year 2015 and associated with the US dollar. Along with that, it is supported by “ether,” which is a token of the popular cryptocurrency “Ethereum.”
Secondly, Tether is another oldest stablecoin as it was launched in the year 2014. Now, it is one of the popular stablecoin. Furthermore, the main use of Tether is transporting the money across different types of exchanges. This helps increase the opportunities when the value of cryptocurrency is different in other exchanges.
Thirdly, the Diem, which was previously named “Libra,” was introduced by Facebook. But it is still not launched yet but has a great impact on people’s minds.
Additionally, USD is another stablecoin launched recently in 2018. It is mainly managed together by two firms of cryptocurrency, i.e., Coinbase, and the other one is Circle.
In conclusion, there are also some drawbacks in stablecoins just like others. For example, if the reserve of a stablecoin is stored with any third party, then it can be vulnerable to security breach. Therefore, in this way you can make the right decision.