Guides & Explanations

Explanation of Stable Coins



Stable coins, as the name suggests, are digital assets, i.e., cryptocurrencies, created to maintain stability in the price of cryptocurrencies. The cryptocurrency ecosystem, which came into limelight with the advent of Bitcoin, has witnessed several criticisms from prominent figures, financial corporations, mainstream media, etc. Most of these criticisms focused on the price volatility of Bitcoin. Released in 2009, Bitcoin has grown from an initial price of $0.003 in 2010 to an all-time high of $20,000. This has led to the argument of whether to consider Bitcoin as an asset, security, or currency. In a new report, released by the G7 & Bank of International Settlements (BIS), the group considered that “Bitcoin has failed as an attractive means of payment or store of value” as it looks into how Stable coins work.

So, in light of the above, Stable coins were created to minimize price volatility. Before now, the cryptocurrency market has witnessed several pumps and dumps scenarios because its operation is highly unregulated. However, these issues are being addressed by Stable coins. Stable coins can be identified with cryptocurrencies, fiat currencies, commodities, etc. In 2018 alone, over 100 Stable coins projects were announced, and quite a few of them are live projects already.

Examples of Stable Coins

There are over 30 Stable coins present in the cryptocurrency ecosystem today. These coins are used on several cryptocurrency exchanges to give a monetary value to the tokens. Examples are USD Tether (USDT), TrueUSD (TUSD), DAI, etc.

Tether

Formerly known as RealCoin, it was created in 2014. USDT allows users to store, send, and receive payments in fiat currencies. It is pegged to major fiats, such as USD, Euros, Yen, etc. With a circulating supply of 4.1 billion tokens, USD Tether is one of the oldest stable coins. Priced at $1.0, it has a total market valuation of $4.12 billion. It is present on over 400 cryptocurrency exchanges. It has no transaction fee. Therefore, users can send/receive tokens at no additional cost.

TrueUSD

This is another widely recognized, stable coin. TUSD runs on the Ethereum blockchain, and it currently has the second-largest market behind USDT. It has a circulating supply of about 175 million tokens with a market cap of $175 million. The coin is pegged to fiat currencies such as USD, etc. Users, however, need to go through a KYC compliance process to be able to exchange the token for fiat at recognized banks.

Use Cases of Stable Coins

A stable coin has a lot of use cases and benefits. A few of them includes;

  • It can be used as a Store of Value: This means that it can retain its value for futuristic use. Examples of assets that serve as a good store of value include Gold, Diamond, etc. Therefore, in place of Bitcoin, which is seen by many as a very volatile asset, users can purchase stable coins due to its long-term advantage.
  • It can be used to Make Payments: Stablecoins can serve as currencies in supermarkets, malls, or service providers. Due to its stability characteristic, it leads to less dispute concerning a change in the price, unlike Bitcoin and some other cryptocurrencies, which can rise in price in split seconds.

These, among many others, are notable uses of stable coins. It is expected that in a few years, stable coins would be one of the largest crypto asset categories if well explored.

Image by Gerd Altmann from Pixabay



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