Stablecoins: What You Need to Know #TOGRP7
Before going over the different popular stablecoins, it is important to know
- what they are and
- why they are important.
Crypto investors amassed enormous wealth overnight and lost a significant amount of their shares within a few weeks. It was at this point that people realized cryptocurrency alternatives are extremely volatile.
Moreover, cryptocurrencies don’t provide a reliable method of exchanging goods and services because of their volatility. The most successful stablecoins that have emerged in the crypto world have thus successfully addressed this issue. Stablecoins, compared to general cryptocurrency alternatives, are characterized by a high level of value stability.
Stablecoins Are Becoming More Popular
With the recent phenomenon known as the ‘stablecoin invasion,’ demand for stablecoins is continuing to grow. In the current market, there are almost 200 stablecoins distributed globally, some of which are already released and some of which are in development. Gemini Dollar (GUSD) and Paxos Standard (PAX), two stablecoins backed by the US dollar, have also been approved and regulated by the New York State Department of Financial Services.
The overall value of stablecoin assets has crossed over $20 billion, according to a report from CB Insights. Many financial institutions looking to enter the crypto space, including JP Morgan, are interested in stablecoins.
Stablecoin Types And Categories
It is possible to categorize stablecoins based on their supporting assets, primarily. The different types of stablecoins can be used to understand the stability of stablecoin prices. Below are some of the common stablecoins you are likely to encounter.
- Stablecoin Backed By Commodities
The stability of stablecoins that are pegged to commodities is usually provided by hard assets. Gold or real estate are examples of hard assets. As collateral for stablecoins, gold is most commonly used, however many stablecoins use a diversified combination of precious metals.
- Cryptoassets-Backed Stablecoins
Crypto-backed stablecoins, on the other hand, paint a very different picture than those pegged to crypto assets. There is a complete list of stablecoins available today, including crypto-backed stablecoins. It is possible for stablecoins to maintain overcollateralized positions under certain circumstances.
- Fiat Currency-Backed Stablecoins
Besides fiat-backed cryptocurrencies, stablecoins can also be accessed via fiat. Many stablecoins are included in the 2021 stablecoin list, and they are very popular. Stablecoins are held as collateral by fiat currencies like the US Dollar, Euro, and Chinese Yuan, as suggested by their name.
- The Seigniorage of Stablecoins
In contrast to a currency or asset, seigniorage is generally managed by an algorithm or process. The Seigniorage-backed stablecoins can be supported by smart contracts on decentralized platforms. In 2021, the Blockchain Ecosystem will offer more opportunities. Blockchain technology will be used by several companies.
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