Stablecoins is a class of cryptocurrencies which offers: instant processing and security payments of cryptocurrencies, and the volatility-free stable valuations of fiat currenciesTalk to Our Experts
They are backed by other kinds of interchangeable assets, such as precious metals. The most common commodity to be collateralized is gold — however, there are also stablecoins backed by oil, real estate, and baskets of various precious metals. Holders of commodity-backed stablecoin holders hold a tangible asset that holds some value .
The most common type of stablecoins are collateralized, or backed by fiat currency like USD, EUR, or GBP. The value of stablecoins of this type is based on the value of the backing currency, which is held by a third-party regulated financial entity.
They utilize algorithms to control the stablecoin’s money supply, similar to a central bank's approach to printing and destroying currency. Seigniorage-based stablecoins a less popular form of stablecoin .
Stablecoins on the other hand, leverage the benefits of cryptocurrencies — such as transparency, security, immutability, digital wallets, fast transactions, low fees, and privacy ,without losing the guarantees of trust and stability that come with using fiat currency.
By enabling a decentralized system that is secure and stable, everything from cross-border lending to financial planning could benefit. With decentralized lending, for example, stablecoins could help ensure a reliable environment for P2P transactions to take place without needing to use a volatile a cryptocurrency like Bitcoin to transact.
Stablecoin provide a safe haven for the crypto holders in a market in exchanging their cryptocurrency to a stablecoin without having to change cryptocurrency to fiat which some crypto platforms don’t allow.