How StableCoins Work
Stable coins are currently among the major trends in the cryptocurrency industry with Tether being the most widely known and used coin. Stable coins allow us to realize the potential of the Blockchain technology fully. With Blockchain, we have access to more effective and secure industries. However, cryptocurrencies prices tend to be volatile which discourages many people from adopting them as a mode of payment.
There are a number of factors why many economists and investors consider cryptocurrencies not to be useful as a stable currency. They include;
● Liquidity issues
● Exchange rate volatility
● Efficiency, stability, or control of anonymous networks
● Scalability of the network
● The absence of the regulatory authorities for identity management or money laundering
● The absence of conventional monetary policies
Values of major cryptocurrencies such as Bitcoin and Ethereum are highly volatile. For instance, if a user sends some Bitcoin to another user, and there is a sudden change in the value of the Bitcoin, it means that the 15% of the value will be vaporized. Therefore, you may end up losing money.
With stable coins, the issue of price volatility can be solved. This will help to increase the viability of performing financial transactions on the Blockchain systems.
A stable coin is a cryptocurrency or a digital currency with a fixed price. Its value is pegged to a stable asset such as gold, U. S dollars, Euros, or Pounds. Stable coins have the following traits that make them an optimal currency.
● Price stability
The Stability of the currency is, however, the most important factor, especially for daily financial transactions. Already, several projects are working on how they can solve this issue of currency instability. They include ;
Tether is the most recognized example of a stable coin. It is backed by fiat currency with a conversion rate equal to $1. In simple terms, 1 USD equals to 1 Tether token, tether trades 1:1 with U. S dollars. Tether reserves are not officially audited despite issuing millions of new tokens. Also, the fact that its token is not sufficiently collateralized makes many people doubt it's token validity.
Currently, tether accounts for more Bitcoin trading volume as compared to the U.S dollar. Already other companies including TrustToken, Basis, and Circle have adopted the U.S dollar. The tether token is well integrated as well as established.
ETH completely backs maker organization, but it's pegged against the U.S dollar. Maker's stable coin is Dai, and like Tether, it's equivalent to 1 U. S. dollar. Maker platform uses an autonomous technology of smart contracts to maintain its stability. Cryptocurrency experts claim that Maker is highly complex and slow-moving as compared to other stable coins such as Tether.
The Havven system uses two coins to back its currency. Nomins is the principal stable coin under the Havven platform which is used for daily transactions. Havvens is the second coin that's responsible for the reserve.
The fee that is charged in each transaction goes back to the company, which are then distributed to the respective Havven token holders as a reward for maintaining the system. What's makes Havven great is that it's fast-moving, fully decentralized, and has a business-oriented team. However, some investors claim that Havven is very new in the market and it needs more centralization to be fully accepted.
Similar to Tether and Havven, Basecoin also trades at less than $1.00. Ivy League developers back it. It uses consensus to contract and expand the coin’s supply. Basecoin company allows its holders to buy bonds to contract the coin, the coins that are used to obtain the bonds are then destroyed to decrease the supply while increasing the price. The opposite happens when expanding the supply.
These are just but a few of the stable coins available in the market today. They are mainly developed to increase the confidence of the users when making daily transactions. These projects are here to bring a stable mode of payment in the world which can be used even for simple purposes including paying for coffee or lunch. Bitcoin is currently the most used cryptocurrency on the market, but stable coins are promising more. More about Bitcoin as a mode of payment can be seen at free Bitcoin telegram signals.
Benefits of Stable coins
Stablecoins have the ability to boost the mainstream usage if cryptocurrencies because of their price volatility. Below are some of the major issues Stablecoins are here to solve:
One major benefits are demonstrated in the remittance market. This mostly involves overseas workers who send money back home to their families. Also, the business and investment industry also suffer the same issue of high transaction cost when sending money internationally.
The introduction of cryptocurrencies has helped solve the issue of high fees when sending money internationally but users are still vulnerable to lose since the value of the cryptocurrencies is not stable.
In addition, stable coins can be used as a store of value where users can be used to store digital assets without being exposed to price risks as long as they have a Stablecoin wallet. Also, they will remove third parties together with their associated risks in most ICO investments.
Also, Stablecoins can help provide a haven where traders and investors don't need to transfer currencies in case of a market crash. With stable coins, we can avoid issues related to fiat currencies such as;
● Lack of currency support exchanges- fiat currencies are usually associated with strict rules and regulations. Therefore, only a few trades can support such transfers. Stablecoins, however, are easier to transact with.
● Slow transaction durations-sending fiat currencies especially internationally take days to process. With stable coins, such transactions will be faster. Also, efficiency in major crypto exchange platforms can be improved.
Stablecoins also provide decentralized exchanges which are sometimes difficult for most financial companies. The exchanges are safe and unhackable, but the individual user's accounts can be hacked. With usual cryptocurrencies, these exchanges find trouble attracting investors. Stablecoins can help solve this issue and increase the numbers of new users.
Without currency stability, cryptocurrencies cannot meet the expected mass adoption and widespread circulation needed for everyday use. Therefore, we won't be able to enjoy the Blockchain technology benefits fully