One of the reasons doubt and unreliability are cast upon crypto-currency is volatility. Crypto investors gaining an immense fortune overnight and losing significant shares by the end of the week is a typical scenario. The emergence of Stablecoins solved this dilemma. As a result, cryptocurrency became a dependable and suitable currency for goods and services exchange. In theory, the value of Stablecoins is generally fixed compared to cryptocurrency alternatives.
There is a growing demand for Stablecoins in the crypto market today. Presently, there are over a hundred Stablecoins in the crypto ecosystem. Furthermore, the future for this cryptocurrency is brighter with regulations from the state department that has been recently released. Reputable institutions such as Facebook, PayPal, and JP Morgan have been eyeing collaboration in the crypto space via Stablecoins. Stablecoins are broken down into different categories that are the basis of their assets supporting them. The backer reflects the foundation of stability of the Stablecoin value.
The entry of Stablecoins into the world helped solve the problem of too much time consumed in abundant speculations in investing assets since it’s not as volatile as other types of currencies. However, many traders might disagree since they rely primarily on volatility to expand their assets.
To gain more insight, here are four types of Stablecoins and the popular ones in the market today.
What you'll learn 👉
Fiat Currency
Stablecoins backed by fiat currency are the most accessible ones. They are popular, and the most common Stablecoins found in the top list for 2021 are fiat-backed cryptocurrencies. These Stablecoins have the support of the US Dollar, Euro, Japanese Yen, or Chinese Yuan. They serve as collateral. The First Digital Asset Group is an organization that offers resources and solutions concerning Celo Stablecoins and the Diem Dollar. These are Stablecoins cryptocurrency backed by the US Dollar.
The Tether or USDT is the perfect example of a fiat currency-backed Stablecoin. Presently, its overall market capitalization is at over 30 USD billion. Moreover, it has brought two other Stablecoins in the crypto universe, EuroTether and the YenTether, pegged against the Euro and Japanese Yen, respectively.
Commodity
Stablecoins benchmarked against commodities are generally solid assets. They are indeed steadfast collaterals. These assets include real estate, gold, or other precious metals. However, gold is the typical collateral used for Stablecoins. It is considered a hard asset with its value steady as a rock. Digix Gold (DGX) is a commodity-backed stable coin pegged against physical gold.
Since they can be linked to varied stable assets, you can be assured that your silver bullion and other precious metals will not suffer a significant reduction in value when backed by Stablecoin. Investing in assets that could otherwise be complex and rigid because of their physical quality and storage needs used to be unrealistic. With the arrival of Stablecoins, exchanging these for assets like real estate or oil or selling them for cash can be quickly done in some countries.
Seigniorage
Seignorage is a profit made by a governing body by issuing currency. Stablecoins backed by seigniorage are usually governed by an algorithm or process concerning currency or asset. Examples of this are smart contracts on decentralized platforms. For instance, Havven’s Nomin or eUSD are Stablecoins that rely on Havven’s escrow technology.
This type runs on smart contracts governed by a computer program with a preset formula. Perhaps one of the advantages of this type is its ease of auditing. More so, what also attracted many to seigniorage is that there’s no physical asset to steal.
Under the decentralized exchange system, Stablecoins are not tied to the government. It is monitored and run by codes, and only changes to the code will affect the system’s flow. It also means there may be less risk because the government cannot regulate, control or shut it down.
Crypto Assets
Crypto assets are crypto-backed Stablecoins. These types of Stablecoins are frequently over-collateralized. An example of this is the strategy of the DAI Stablecoin; the crypto collateral for DAI are the loans made from MakerDAO. It works seamlessly by utilizing the deposited money from DAI as funding to be loaned out by MakerDAO.
The most valuable aspect of Stablecoins is in its name, “stability.” It plays an integral role in the adoption of cryptocurrency in the digital financial system. It has gradually risen from its humble beginnings in the world of Binance into something groundbreaking such as the elimination of cryptocurrency volatility and the apprehensions that come with it.
