An introduction to stablecoins
In the ever-growing and emerging crypto world Stablecoins are a particular kind of digital currency that is associated with a real-life property or asset similar to U.S. dollars. A critical feature of this coin is that stablecoin’s value does not change much.
Most of the stablecoin that are available in the market right now use dollars as their benchmark asset. The rest of them are using other fiat currencies such as the euro and yen as their benchmark asset. For this exact reason, the price of Stablecoins fluctuates very little. But when it comes to other high profile crypto coins such as bitcoin, ethereum etc., the fluctuation on overall value becomes very high, and they are also very prone to random ups and downs.
The initiation of Stablecoins happened with Tether in the year 2014, later on, other stablecoins were modelled after Tether. For every dollar the user deposits, they receive one token. At a one-for-one exchange rate, the stablecoins can be theoretically exchanged at any time, anywhere, to their original currencies. Currently, Tether has a market capitalization of $117 billion, and it is topmost among all the stablecoins. The second position is occupied by USD Coin with a market capitalization of about $27 billion.
What stable coin brings to the market?
The original purpose of bringing stablecoins into the market was to buy other cryptocurrencies. Because the crypto exchange platforms did not have access to the traditional banks. In terms of utilization, they are more beneficial than other fiat currencies issued by governments and state-run financial organizations. Without being dependent on the bank, stablecoins can be used 24 hours a day, seven days a week, anywhere in the world. Within a matter of seconds, you can complete money transfers.
Another unique and handy feature of stablecoins is that they can be used together with smart contracts on the blockchain network. These smart contracts do not require any legal authority to execute their functions. The code in smart contracts automatically executes the prerequisite whenever the terms and agreements are fulfilled. The money gets automatically transferred without any kind of external incitation. This creates a huge advantage for stablecoins, even if it is compared to fiat currencies.
Due to the smart contracts, stablecoins have gained a huge boost not only in terms of seamless trading but also payments, lending, market prediction, insurance, etc. Even decentralized autonomous business organizations have been established that operate with limited human intervention. All these software-based financial systems are collectively known as decentralized finance or DeFi. Also, according to some traders, businessmen and professionals, transferring money through stablecoins is cheaper, faster and effortless compared with fiat currency.
Some people have also advised that lack of regulation can pose a substantial monetary risk for the financial systems even though regulators have taken significant interest in stablecoins recently.