What Is Stablecoin and How Does It Work? : Friends, a special thing about Cryptocurrency is that it is very volatile. That is, its price can touch the sky in one moment, and in another moment it can come to the ground. But there are some Cryptocurrency which are not affected by the properties of this Volatility even though they are Cryptocurrency. This type of Cryptocurrency is called Stablecoin.
Stablecoin is a reality in today’s time, and it rests in the market with the help of Reserve Asset. Stablecoin is maintaining its identity in this Cryptocurrency market today due to two reasons, first reason is its fast processing and strong security related to payment and second reason is its Stable Valuation which shows Non-Volatile Price Valuation.
So friends, this was a simple information about Stablecoin, but if you want to know about Stablecoin in detail, then read this article till the end because in today’s article we will tell you in detail what Stablecoin is? How Does Stablecoin Control Volatility? And what are the types of Stablecoin etc.
What Is Stablecoin?
A Stablecoin is a cryptocurrency that keeps its valuation tied to an external reference. That external reference can be something whose market value is very stable, such as US Dollar or Gold. A Stablecoin’s own Volatility is also stable and it also reduces the Volatility of the Digital Cryptocurrency Market to an extent.
Types of Stablecoin
Friends, as we have told you right above that Stablecoin is used for stabilization in the market of cryptocurrency, along with it is also a type of cryptocurrency. But this cryptocurrency is slightly different from other cryptocurrencies, because its value or price remains quite stable compared to other cryptocurrencies. For this great reason, Stablecoin is mainly divided into two parts-
- Fiat-Collateralized Stablecoin
- Commodity-backed Stablecoin
1) Fiat-Collateralized Stablecoin
These are those Stablecoins whose price rests on the collateral associated with them. Here the cryptocurrency is definitely a digital currency, but the collateral is completely physical, which controls the fluctuations in the price of this cryptocurrency.
2) Commodity-backed Stablecoin
These are those Stablecoins whose price is linked to the asset ie commodity associated with them. As we all know that the price of any commodity cannot change much overnight. That is why when the price of a cryptocurrency is combined with a commodity, that cryptocurrency becomes a kind of Stablecoin whose price is largely controlled.
The arrival of such a Cryptocurrency in the world of Cryptocurrency, whose Volatility is Controlled, and whose price does not suddenly touch the sky or the ground, then seeing such a Cryptocurrency, people definitely want to invest in it, but in such Cryptocurrency Better than investing, people consider it safer to invest in the stock market or in the Public Provident fund. Therefore, the future of Stablecoin looks a bit hazy today. But its concept is really good.
Some applications have been given in it, some are such as blockchain network, decentralized insurance, derivatives contracts etc. User in this application will be used for trading of futures market and transactions.
Tether Coin This is a stable digital currency. This coin is also known as USDT, which is a cryptocurrency pegged to the US dollar. Tether Coin is owned by ifinex, a Hong Kong-registered company.
USD Coin (USDC) It is a kind of digital blockchain based Stablecoin that is pegged. With the world one largest fiat currency United States dollar, USD coin is a digital crypto Stablecoin. Which is fully backed by the US dollar, or backed by expensive dollar assets such as US Treasury securities.
TUSD is a digital or virtual currency that functions entirely on its own regulation, meaning the TUSD currency cannot be controlled by any bank or government. And all the transactions in it are done by peer to peer.
DAI is a coin which is a stable currency based on Ethereum which is issued and developed by a marker protocol and marker DAO Decentralized created by DAO Decentralized. After mining this coin it is deposited in smart contract.
BUSD is such a Stablecoin that is created by Binance, whatever offers are made in the Stablecoin, it is used on Blockchain technology, this coin is regulated by New York State.
What is the need of Stablecoin?
In the above definition, we learned that a Stablecoin is a coin whose rapid changes in price can be controlled, and it is introduced to reduce the volatility of the cryptocurrency market. Today, it has been more than a decade since Cryptocurrency came into existence but still it has not got the acceptance that it should have got. The main reason for this is that it is very volatile. That is, Cryptocurrency can be worth crores overnight, and after some time it can also be at a price near 0.
In such a situation, a person thinks a thousand times before investing, and Stablecoin comes in handy in such situations. With the help of a Stablecoin, the volatility of large cryptocurrencies which are more volatile is controlled.
When Cryptocurrencies like Bitcoin are more volatile and the price of Millions of Bitcoins goes up and down in a day, Stablecoins reduce the volatility of such digital currency significantly. The price of Stablecoin is exactly the same as that of a US Dollar or Gold, which are not at all stable but are not very volatile either.
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