• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Articles
  • News
  • Events
  • Advertize
  • Jobs
  • Courses
  • Contact
  • (0)
  • LoginRegister
    • Facebook
    • LinkedIn
    • RSS
      Articles
      News
      Events
      Job Posts
    • Twitter
Datafloq

Datafloq

Data and Technology Insights

  • Categories
    • Big Data
    • Blockchain
    • Cloud
    • Internet Of Things
    • Metaverse
    • Robotics
    • Cybersecurity
    • Startups
    • Strategy
    • Technical
  • Big Data
  • Blockchain
  • Cloud
  • Metaverse
  • Internet Of Things
  • Robotics
  • Cybersecurity
  • Startups
  • Strategy
  • Technical

Stablecoin 101: What It Is and How It Can Protect Your Money

Amit Purohit / 5 min read.
April 20, 2021
Datafloq AI Score
×

Datafloq AI Score: 79.33

Datafloq enables anyone to contribute articles, but we value high-quality content. This means that we do not accept SEO link building content, spammy articles, clickbait, articles written by bots and especially not misinformation. Therefore, we have developed an AI, built using multiple built open-source and proprietary tools to instantly define whether an article is written by a human or a bot and determine the level of bias, objectivity, whether it is fact-based or not, sentiment and overall quality.

Articles published on Datafloq need to have a minimum AI score of 60% and we provide this graph to give more detailed information on how we rate this article. Please note that this is a work in progress and if you have any suggestions, feel free to contact us.

floq.to/Ppjc7

Whether or not you have invested in the crypto world, odds are, you are still familiar with the words blockchain and cryptocurrency. For more than a decade now, cryptocurrencies and blockchain have been fighting to come out on top. Nevertheless, their prices soaring up one day and plummeting the next can make anyone apprehensive.

While it is advised to keep your eyes peeled, if you are looking for an alternative that can act as your shield against potential losses, stablecoin is your answer.

Here’s the man of the hour, the stablecoin, decoded.

Introduction

True to its name, a stablecoin is a type of cryptocurrency with a constant price that remains stable under any circumstance.

Stablecoins endeavor to mimic or peg their market value to another asset or external reference. Their rate is pegged to that of entities like gold, gas, etc., or the value of government-issued money like dollars, euro, yen, and many more.

Working Mechanism

Stablecoins operate their strategies and operations through blockchain technology. They are utilized as a unit of account, medium of exchange, and value store under the section of payment tokens.

The most prominent stablecoins encompass Tether (USDT), Dai (DAI), and USD Coin (USDC), among many.

Some fiat currencies are very vulnerable to inflation, while others like Bitcoin (BTC) and Ethereum (ETH) are known to be highly unstable assets. Stablecoins the torchbearers are specifically designed to maintain their value or achieve price stability, thereby stabilizing the variable crypto markets.

Stablecoins- types

Let’s have a look at the four categories of stablecoins.

Fiat-collateralized stablecoin

As the name suggests, an existing government-issued currency backs them like USD or pound. For every digital coin you get issued, you are required to offer an equivalent amount of fiat money as collateral.Source: masterthecrypto.com

In other words, fiat-collateralized stablecoins have the same value as regular currency and are topping the charts as the most popular and widely used type of cryptocurrency.

To help you understand better, consider this.

Let’s say your currency is the USD; then each stable coin crypto for the dollar will have the same value, $1. Both of these currency ratios will always stay constant, as 1:1. To be specific, in Tether (USDT), 1 USDT is always valued at 1 USD.

However, we can not completely rule out frauds here since centralized groups and entities issue these coins with their own rules and protocols. Therefore, invest in an issuer you trust in.

Commodity-collateralized stablecoins

Though highly similar to fiat-backed coins, the commodity collateralized stablecoins differ from them in one aspect. Instead of fiat money, they use other kinds of interchangeable assets and goods as collateral, including gold, silver, diamonds, etc., precious metals, and minerals. Not only this, but they also utilize valuable commodities like oil and natural gas, exclusive real estate, etc.

If you are hunting an example of this one, check out Petro-Venezuela’s oil-backed cryptocurrency.

Cryptocurrency-collateralized stablecoins

In this case, the stablecoin is backed by cryptocurrencies. Using cryptocurrencies as collateral, the entire process thereby runs and operates on the blockchain in a decentralized manner. Crypto-collateralized stablecoins are mostly pegged with a 1:2 ratio.source: pinterest.com

As cryptocurrency is an underlying asset, it is not conventionally secure and may have high volatility. To ensure that the supply of stablecoins remains unfazed by extreme price fluctuations, owing to cryptocurrencies’ highly volatile nature, many cryptocurrencies have to be held in collateral for every stablecoin.

Additionally, the high amount held as reserves gives people enough reasons to term it as over-collateralized. Example: Dai (DAI), backed by collateral on the Maker platform.

The complexity of cryptocurrencies puts this type behind its fiat-backed counterparts in the race.

Algorithmic stablecoins

Also called non-collateralized, either fiat money or cryptocurrency doesn’t back these stablecoins as the name gives away. That means algorithmic stablecoins do not involve the use of any reserve asset.


Interested in what the future will bring? Download our 2023 Technology Trends eBook for free.

Consent

Instead, their stability relies on an algorithm. Smart contracts are in charge of administering the supply and demand, in turn assuring the stablecoin’s price stability.

The algorithmic system automatically generates new coins if the stablecoin is trading sky high. As another option, the system will buy coins in the market to cut down its circulating supply.Source: okex.com

An example of this is Primecoin (XPM). Another example is the cryptocurrency base coin, which uses a consensus mechanism to determine whether it should increase or decrease tokens’ supply on a need basis.

This stablecoin type might come across as the most complicated one among the four, but the algorithmic systems are similar to central banks’ managing supply processes.

Importance of stablecoins

Like their thousand counterparts in the sea of cryptocurrencies, stablecoins too strive to provide advanced functions of traditional money across the world.

Here’s a glance at some of their most significant benefits.

Price stability

Stablecoins are designed to have a stable value over any time. This makes many crypto geeks and investors (including us!) consider them a sanctuary for investors.

Evidently enough, the value of fiat money and significant cryptocurrencies are experiencing dramatic rising and plunging day by day, which makes stablecoins an imminent option.

If you, too, are wary of investing, the good news is now; you can now store your wealth in an asset without seeing any risk of loss due to inflation.

Privacy and decentralization

Since stablecoins are a type of cryptocurrency, they operate on the same powerful technology and systems as thousands of other cryptos.

The catch lies in the fact that, while cryptocurrencies are decentralized, there might still be an underlying need for ties with a fiat currency’s banking system.

Hence, this can be a good headstart for you if you aren’t ready to intotally vest in the crypto land.

Programmable currency

Stablecoins are programmable and can be customized according to the users’ needs.

This is mainly brought into action by rewards or loyalty programs.

As an example, if a company mounts its business on top of its stablecoin, it can devise an application where users can easily and quickly check their stablecoin and rewards at once.

A means to buy cryptocurrencies

You aren’t obliged to use Tether to purchase cryptocurrencies in India. However, using stablecoins in cryptocurrency exchanges in India reduces your transactional fees.

Moreover, Tether is the most employed method to acquire cryptocurrencies.

Conclusion

Stablecoins are known to promote faster and cheaper payment transactions.

Employing stablecoins, you can transfer and accept payments in and from any corner of the world with just a couple of taps on your phone. You can also trace your funds and payment activities in real-time!

With cryptocurrencies taking over the industries today, digital assets like stablecoins have the flame to usher us into the digital world.

Safeguarding our money against the severe consequences of market inconsistencies and aiding faster, adaptable, and secure digital payments, stablecoins are here to help us attain fiscal steadiness and win the war against volatility that deters us.


Originally published here

Categories: Blockchain
Tags: Bitcoin, blockchain, cryptocurrency

About Amit Purohit

This is the place where I talk and share my brief knowledge about latest tech and finance news. Currently I'm part of WazirX - India's most trusted cryptocurrency exchange.

Primary Sidebar

E-mail Newsletter

Sign up to receive email updates daily and to hear what's going on with us!

Publish
AN Article
Submit
a press release
List
AN Event
Create
A Job Post
Host your website with Managed WordPress for $1.00/mo with GoDaddy!

Related Articles

The Advantages of IT Staff Augmentation Over Traditional Hiring

May 4, 2023 By Mukesh Ram

The State of Digital Asset Management in 2023

May 3, 2023 By pimcoremkt

Test Data Management – Implementation Challenges and Tools Available

May 1, 2023 By yash.mehta262

Related Jobs

  • Software Engineer | South Yorkshire, GB - February 07, 2023
  • Software Engineer with C# .net Investment House | London, GB - February 07, 2023
  • Senior Java Developer | London, GB - February 07, 2023
  • Software Engineer – Growing Digital Media Company | London, GB - February 07, 2023
  • LBG Returners – Senior Data Analyst | Chester Moor, GB - February 07, 2023
More Jobs

Tags

AI Amazon analysis analytics app application Artificial Intelligence BI Big Data business China Cloud Companies company costs crypto customers Data design development digital environment experience future Google+ government information learning machine learning market mobile Musk news Other public research sales security share social social media software strategy technology twitter

Related Events

  • 6th Middle East Banking AI & Analytics Summit 2023 | Riyadh, Saudi Arabia - May 10, 2023
  • Data Science Salon NYC: AI & Machine Learning in Finance & Technology | The Theater Center - December 7, 2022
  • Big Data LDN 2023 | Olympia London - September 20, 2023
More events

Related Online Courses

  • Oracle Cloud Data Management Foundations Workshop
  • Data Science at Scale
  • Statistics with Python
More courses

Footer


Datafloq is the one-stop source for big data, blockchain and artificial intelligence. We offer information, insights and opportunities to drive innovation with emerging technologies.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Recent

  • 5 Reasons Why Modern Data Integration Gives You a Competitive Advantage
  • 5 Most Common Database Structures for Small Businesses
  • 6 Ways to Reduce IT Costs Through Observability
  • How is Big Data Analytics Used in Business? These 5 Use Cases Share Valuable Insights
  • How Realistic Are Self-Driving Cars?

Search

Tags

AI Amazon analysis analytics app application Artificial Intelligence BI Big Data business China Cloud Companies company costs crypto customers Data design development digital environment experience future Google+ government information learning machine learning market mobile Musk news Other public research sales security share social social media software strategy technology twitter

Copyright © 2023 Datafloq
HTML Sitemap| Privacy| Terms| Cookies

  • Facebook
  • Twitter
  • LinkedIn
  • WhatsApp

In order to optimize the website and to continuously improve Datafloq, we use cookies. For more information click here.

Dear visitor,
Thank you for visiting Datafloq. If you find our content interesting, please subscribe to our weekly newsletter:

Did you know that you can publish job posts for free on Datafloq? You can start immediately and find the best candidates for free! Click here to get started.

Not Now Subscribe

Thanks for visiting Datafloq
If you enjoyed our content on emerging technologies, why not subscribe to our weekly newsletter to receive the latest news straight into your mailbox?

Subscribe

No thanks

Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.

Marketing cookies

This website uses Google Analytics to collect anonymous information such as the number of visitors to the site, and the most popular pages.

Keeping this cookie enabled helps us to improve our website.

Please enable Strictly Necessary Cookies first so that we can save your preferences!