What are Stablecoins?

Introduction to StableCoins :

The name itself indicates the entire concept i.e. stability. Stablecoins are basically crypto-currencies with a steady value. The definition of stable coins rests in the process of fixing the exchange value of a currency to less volatile assets such as gold or fiat currencies. Cryptocurrencies are certainly a boon to the economy at a time when the functionality of banks and financial organizations is not quite smooth. At present every developed economy worldwide has successfully adopted the norms of the crypto market. The main types include fiat-backed, crypto-backed and commodity-backed.

The features of stable coins are:

• A person having an Ethereum account can receive or send Stablecoins easily worldwide. 
• One can earn interest upon lending the coins.
• Stablecoins can be exchanged.
• These coins are secured and the risk of forging transactions is very less.

Need of Stable Coins:

The utility of Stable coins can’t be confined within a limited sphere. The stability proves to be one of the greatest assets of Stable coins unlike other cryptocurrencies like Bitcoin. One finds lesser risk in securing the assets with Stable coins. There is a greater notion of security, transparency and accountability with Stable coins. Stable coins work better in cheaper and secure modes of cross border remittance. All the benefits of Cryptocurrency can be found within Stable Coins along with the elimination of high price volatility. Stable Coins are definitely one fine blend of cryptocurrencies and fiat currencies because they combine high speed and security with stability and simplicity. The usages of such coins are more on DeFi platforms which extract a high gain of interest. The freedom from intermediaries makes Stablecoins fit for the modern economy. Given the current scenario when the governments are more inclined towards CBDCs, there remains a high chance of having state issued Stablecoins.

Types of Stable Coins:

There are certain types of stable coins such as fiat backed, crypto backed, commodity-backed and algorithm based. Fiat backed stable coins have the largest economic capitalization. They rely on dollars and popular examples can be Tether (USDT), USDC, etc.

Crypto backed stable coins rely on collateral assets which are somewhat volatile, e.g. DAI and BitUSD. The nature of this kind is decentralized and the value of DAI is backed by the contract platform called Maker.

The stability of commodity-backed stable coins relies on precious metals such as gold or real estate properties. Some popular examples can be Tether Gold and Paxos Gold.

Algorithm based Stable coins require no collateral and are based on the study of public algorithms like Ampleforth, Carbon, Kowala KUSD. The idea first came from cryptographer Robert Sams.

Top Stablecoins:

• Tether (USDT) : The most popular name in crypto currencies. It is highly secured and performs smoothly. It can be backed by gold and cash.
• Dai : Launched in 2017, it is one of the most popular ones at present. It is used against Bitcoin or Ethereum and can be spent in countries like the UK using Monolith Debit Cards.
• TrueUSD :  Launched in 2018, the main objective was to ensure none in charge of issuing tokens. It is fully collateralized with a view to taking utmost advantage of block chain networks without much volatility. It also has lower transaction cost and higher percentage of interest rate.
• USDC : It gets backing from Coinbase, world’s biggest Bitcoin broker. 

Future of Stable coins:

The year 2020 saw a massive growth of Stable coins following which at present there is one enormous rise in Stablecoins development companies providing solutions across the globe. USDC for example saw a 700% rise in the first quarter of 2020 which clearly denotes significant global demand for digital dollars. Moreover many countries are looking forward to launching their own digital currencies like People’s Bank of China is currently working on Digital Yuan, Bank of England has published a discussion paper on CBDCs, US lawmakers recently introduced a bill proposing Digital Dollar and Facebook, on the other hand, announced their digital currency called the Libra. It is still debatable whether Stable coins can be accepted as digital counterparts of fiat currency considering the risk factors involved.

Stablecoins over Bitcoins?

Bitcoins are undoubtedly popular but the advent of Stable coins is surely a game changer.  Bitcoins failed in delivering the idea of having one decentralized and shared payment system and looking from that point of view Stable coins are definitely one better alternative. It is an evolution of the traditional payment system. A person having no knowledge of blockchain technology may also keep his digital assets in Stable coins. Asset backed stable coins which are to reduce price volatility by using fiat currencies come under centralized insurance whereas algorithmic stable coins which rely on computing logic to govern stability, come under decentralized insurance. While Stable coins have huge potential in bringing a new era in the global payment system, there lies a risk of substitution of domestic currencies. In the rise of the pandemic situation, prices of Bitcoin dropped massively but there was a notable rise in two leading dollar backed Stable coins which are Tether and USD coins. The reason behind the upsurge is definitely the ease of access and liquidity. Although Stable coins have proven their worth in these testing times, the risk factor associated can’t be fully forgotten.