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Everything You Need To Know About Stablecoins

Stablecoins Bitcoin

An introduction to cryptocurrencies is incomplete without the mention of stablecoins. Stablecoins are Ethereum tokens designed to stay stable, meaning they do not fluctuate even when the price of ETH changes. Read on for an in-depth understanding of stablecoins, their types and uses.

What are Stablecoins?

Stablecoins are cryptocurrencies that are designed to maintain a stable price with time. The value of a stablecoin is pegged to an underlying asset; for example, the USDC stablecoin is backed by dollar-denominated assets in regulation with U.S. financial institutions.

Here are some salient features of stablecoins:

  • They are global and accessible to all.
  • The transmission is secure, cheap and rapid.
  • They are digitally native to the internet.

How many types of Stablecoins are there?

There are four main types of stablecoins, identified by their underlying collateral structure;

  • Fiat-backed Stablecoins:  Fiat-backed or fiat-collateralised stablecoins maintain a reserve of a fiat currency as collateral, assuring the stablecoin’s stability. Examples of collateral can be dollars (in the U.S.), gold, silver, crude oil, etc. 
  • Crypto-backed Stablecoins: They are collateralised by other cryptocurrencies. But since cryptocurrencies are highly volatile, crypto-backed stablecoins are over-collateralised. This means that there are more cryptocurrency reserves than the value of stablecoins used.
  • Algorithmic Stablecoins: They stabilise the value of stablecoins by controlling the supply via a computer-run algorithm. They do not rely on a reserve asset.

When can Stablecoins be used?

International bank transfers are one of the primary use cases of stablecoins. This is because stablecoins offer all the benefits of cryptocurrency, such as faster transfers and low fees, without the drawback of being volatile. Therefore, investors can use stablecoins to switch between different cryptocurrencies while staying in the crypto lane.

How to make money with Stablecoins?

There are two approach methods to making money with stablecoins. They are:

  1. Centralised model: In this approach, the transparency of reserves becomes a topic of controversy for all investors. They fear the other party may not fulfil their part of the deal.
  2. Decentralised model: Here, the revenue models vary with the different protocols. While investing the reserves can increase profit, there are also significant risks that the banks may have to incur. If sufficient liquid reserves are not available, it can cause investor panic.

Are you excited about venturing into the world of stablecoins and cryptocurrencies? Then, tune into Exalt.Club for the latest news and blog pieces on all things crypto!

Frequently Asked Questions 

Q1) What is the best stable coin?

Ans) Some of the best stablecoins to watch out for:

  • Binance
  • DeFi Dollar
  • Tether
  • Dai
  • Pax Gold

Q2) Is Ethereum a stablecoin? 

Ans) Yes. Stablecoins are Ethereum tokens designed to stay at a fixed value, even when the price of Eth changes.

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Romina Gopalan is a top-notch upskilling advisor & content writer. Her areas of expertise include Digital Marketing, Data Sciences, IoT, RPA, and UX/UI writing. Her sharp research and writing skills allow her to identify futuristic opportunities. Thus, helping you understand how you can leverage expertise in any domain.

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