Stablcoin – what is it in simple words? Types of stable cryptocurrencies, features, list of top stablecoins

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Stablcoins are commonly referred to as digital assets that are designed to minimize the impact of price volatility. What are stablecoins, how do they differ from classic cryptocurrencies and why are they so important for the further development of the virtual asset market? The Btcnewsweb.com editors will discuss these issues today.

These assets are gaining traction more and more as they are much more resilient than conventional cryptocurrencies. Economically, they are tied to the real US dollar, which is the reserve world currency, or to other world currencies – the euro, the Japanese yen.

You can buy stablecoins on cryptocurrency exchanges. For example, Binance, Bybit, OKEx, EXMO, FTX and others.

The first and most famous stablecoin was and remains Tether, which has a USDT exchange ticket.

Digital counterparts of the euro and the Japanese yen were also created. However, they were not destined to become as widespread as the virtual dollar Tether, practically sinking into oblivion.

The way Tether works is quite simple: the company that issues virtual coins reserves the same amount of real dollars in a separate bank account. This is how the balance is maintained – the same amount of virtual dollars USDT, and the same amount of real fiat money (USD).

Stablecoin rate Tether USDT

Name Price Market Cap Supply Change % (7D) Performance
Tether USDT
$1.00
$67,776,034,767.77 67776034767.771 USDT
0%

Types of stablecoins

Consider the main types of stablecoins (as of January 202, since new types may appear in the future):

  1. Virtual counterparts of fiat currencies that are backed by them (US dollar – Tether (USDT), euro (EURT), and so on).
  2. Backed by cryptocurrency (for example, the stablecoin Maker DAO, which was created according to the ERC-20 standard (based on Ethereum) and is something like a virtual stock and cryptocurrency in one bottle).
  3. Stablecoins, which have neither tangible nor digital guarantees (they are regulated by external organizations that promote the asset, develop it and provide the functionality of the currency; a typical example is Basecoin, the value of which is constantly equalized so that it is close to $ 1. for this procedure, large funds interested in maintaining investor confidence in the selected asset; also, regulation takes place according to the mathematical formula of a smart contract, with the use of which the “stable coin” was created).

Each of the existing types of stablecoins has its own key features and characteristics.

Virtual counterparts of the dollar are the most popular among retail investors who prefer to engage in cryptocurrency trading, as well as invest in cryptocurrencies for a short and long term, after which they fix profits and go to stablecoins in order to preserve the income received.

Backed by cryptocurrencies are more used by crypto enthusiasts, developers and venture capitalists, as well as those investors who wish to invest for the long term.

Well, stablecoins that do not have material and digital guarantees are the prerogative of large venture capital funds.

Advantages and disadvantages. Differences from cryptocurrencies

Stablecoins differ from cryptocurrencies primarily in that they have a low volatility. It is in order to preserve the value, the funds of users, both large and medium and small investors, that is precisely why stable virtual assets were created.

Another difference is that the issuing organization (an institution that issues a stablecoin into circulation, for example, a fund, a cryptocurrency exchange, a corporation) can issue an unlimited amount of an asset. The same cannot be said about cryptocurrencies, most of which have limited emission.

Main advantages of stablecoins:

✅ a low level of volatility (this indicator can be attributed to both positives and negatives, since it is almost impossible to make big money on fluctuations in the rate of an asset, but it will not collapse by 70-90%, like some cryptocurrencies);

✅ such assets are backed by real value (fiat money, gold, silver, oil), and this makes it possible to use them as a real investment instrument and not be afraid that tomorrow or the day after tomorrow the currency will disappear and lose its value);

✅ can be used both to preserve value for a long period of time, in the case of long-term investment of funds, and for any type of trading (daily, margin) as an excellent tool for fixing profits;

✅ low level of dependence on government agencies – yes, you heard everything right, since stablecoin is an open digital asset that is widespread throughout the world and is not influenced by the central bank of the state, officials and financial regulators;

✅ an increase in the popularity of the cryptocurrency market in general, attracting new users to the market who are actively using stablecoins both for short-term speculation and earnings, and for maintaining the value of investments for a long period of time.

Let’s consider the main disadvantages of “stable cryptocurrencies”:

✅ stablecoins are centralized assets, since they are issued either by crypto exchanges, or well-known funds, various private financial institutions. It is these companies that decide how much virtual currency will be released to the market, and an unlimited number of coins are already being issued, which often negatively affects the exchange rate;

✅ scandals related to some stablecoins (we already mentioned Tether at the beginning of the article), undermining investor confidence, which also negatively affects the asset price and often forms a negative image of one or another “stable virtual currency”;

✅ there are also risks of robbing banks where the amount of fiat money is stored that underpins the virtual asset.

“Stable coins” differ from cryptocurrencies in that they are not so strongly susceptible to “pump” (artificial speculative increase in the rate of a digital asset) and “dump” (artificial decline) schemes, are resistant to cryptocurrency market collapses, are backed by fiat money (US dollar , euro), and are also issued by specialized companies (stock exchanges, funds).

The growing popularity of stablecoins directly depends on the growth of the cryptocurrency asset market, as well as on the demand of both ordinary, retail investors and large financial institutions.

List of Top 6 Popular Stablecoins in 2022

There are several of the most top-notch, well-known stablecoins, which have a high level of liquidity, reliability and are popular among investors and traders. Here is a list of them:

  1. True USD (TUSD) – the developers call this virtual currency the only regulated, independent coin that is backed by the US dollar in a 1:1 ratio. This is a very young stablecoin that appeared on the market only in 2018.
  1. Tether (USDT) is not only the eponymous “stable cryptocurrency”, but also a blockchain-enabled platform designed to make it easier to use fiat currencies digitally. Tether has been the leader in the stablecoin market for a long time, but in 2018 it was ousted from the pedestal by other, new coins.
  1. USD Coin (USDC) is the result of a joint development of specialists from the American crypto exchange Coinbase and Circle. The coin is also new and not promoted.
  1. Gemini USD (GUSD) is a stablecoin of the American cryptocurrency exchange Gemini, launched by the Winklevoss twin brothers, who are known for being the world’s first Bitcoin billionaires.
  1. Paxos Standard Token (PAX) is a “stable token” that emerged in 2018 and has managed to get support from a number of well-known cryptocurrency trading platforms, in particular Binance and Okex.
  1. DAI (DAI) is a stable decentralized currency (stablecoin) designed to transform the financial industry by providing the market with a decentralized currency that is resistant to price fluctuations, market crashes and ups.

The described stablecoins have a significant level of capitalization and are in the TOP-100 of the cryptocurrency market (according to Coinmarketcap).

Other stablecoins

There are other less popular “stablecoins” that have not become so common among users:

  1. Maker DAO (MKR) is a universal stablecoin consisting of collateralized loans and a decentralized stablecoin.
  2. USDCoin (USC) is not a very popular coin, which is located at the very bottom of the Coinmarketcap rating and is intended primarily for cross-border payments.
  3. Carboncoin (CARBON) is also an unpopular stablecoin, an energy efficient digital currency that has been in operation since 2014.

The list is rather modest, as there are other “stable currencies”, but here are the most famous ones.

Output

Stablecoins are great for preserving an investor’s assets. With their help, you can both make large transactions, trade on the day, and invest in altcoins and Bitcoin (BTC) for a long time, fixing profits and leaving the classic cryptocurrency to “stable coins”.

However, the growth in popularity of stablecoins directly depends on the cryptocurrency asset market, as well as on the demand of both ordinary, retail investors and large financial institutions.

The emergence of new stablecoins creates competition in the market, followed by the development of these assets, their constant improvement and improvement.

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