What Exactly Is Stablecoins and How Does it Differ from other Cryptocurrencies

Many people are still skeptical that stablecoins like tether and others are truly stable. Because of Bitcoin’s high volatility, stablecoins have emerged.

Stablecoins are cryptocurrencies that are designed to reduce the volatility of the stablecoin’s price. A “stable coin” is a cryptocurrency that is linked to another stable asset, such as gold or the US dollar.

Stablecoins serve as a bridge between the worlds of fiat currency and cryptocurrencies. Many businesses rely on centralized authorities, which are supposed to back each coin with a one-to-one equivalent in Crypto or USD and to control price volatility. Companies that provide this service, such as Tether, have a history of deception and shady dealings.

Stablecoins provide investors with a fiat peg on a blockchain ledger with semi-interoperable cross-chain behavior. Investors have complete transparency of their trades because transactions are verified on the blockchain. The term “stablecoins” is a bit misleading because these currencies are volatile when tokenized on the blockchain.

Tether, a cryptocurrency pegged to the US dollar, fell to 85 cents in 2018. Recognizing that volatility is a barrier to widespread adoption, Element Zero, a non-profit, developed a next-generation payment network based on an algorithmic stablecoin creation platform.

Unlike the Facebook platform, which is centralized and subject to significant volatility, Element Zero stablecoins are powered by the decentralized Stability Protocol and a new algorithmic method that eliminates the ability to sell Element Zero stablecoins below or above the set price to combat inflation. The recently released Testnet has demonstrated that they are capable of achieving true stability.

Element Zero aims to transform our ideas about stability as we know it by offering a truly next-generation payment solution that is open to all by providing a smart and open-source stablecoin payment solution.

A stablecoin is a coin whose value does not change. The most well-known is Tether, which is currently embroiled in a scandal. It appears that Bitfinex did not have enough fiat currency to back up the tether.

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I’m not convinced that stable coins are a good idea. They are intended to be a bridge between cryptocurrencies and traditional currencies. But, in the absence of a government, can a private organization guarantee stability?

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Furthermore, why not simply use fiat currency? Stable coin supporters have yet to present compelling arguments in their favor, and the recent scandal does not help. (Yasmin.)

Nowadays, cryptocurrencies are frequently regarded as untrustworthy assets due to the fact that the value of a digital currency can fluctuate dramatically in a single day. At first glance, the decision seemed straightforward: create so-called stablecoins, or coins that are not subject to price fluctuations and are linked to strong and reliable assets.

It represents cryptocurrency, the price of which is determined by the value of a traditional financial asset such as the US dollar, oil, gold, and so on.

The tying of the cryptocurrency rate to the price of such an asset is an attempt to bring digital technologies into the real world. Because it allows you to determine and compare prices for goods and services, Stablecoin can be used as a means of payment in commodity-money relations.

The very nature of Stablecoin confers a number of Significant Advantages on such Cryptocurrencies:

  1. Stablecoin volatility is several orders of magnitude lower than that of other cryptocurrencies because their price is directly related to the rate of the real asset. 2. The emergence of new opportunities in the cryptocurrency and digital asset development industries.
  2. Stablecoin has the potential to become a global currency that is unaffected by the value of fiat currencies and is unaffected by the actions of the government or the Central Bank.

Stablecoin-powered projects include:

 

  1. TETHER (USDT) OR DIGITAL DOLLAR – a stablecoin issued on the Bitcoin blockchain, with the coin’s value tied to the US dollar exchange rate.

 

  1. DIGIX (DGX) OR DIGITAL GOLD – an Ethereum-based stablecoin. 1 DGX token equals 1 gram of gold, with the option of dividing the coin to the equivalent of 0.001 gram.

 

  1. EL PETRO OR DIGITAL OIL – El Petro is Venezuela’s national cryptocurrency, issued on nem blockchain. Its value is linked to crude oil – 100 million El Petro coins are equivalent to 5.3 billion barrels of crude oil.
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Remember when the price of Bitcoin skyrocketed from $1,000 to $10,000 and beyond in 2017? Bitcoin and other cryptocurrencies are extremely volatile, rapidly losing or gaining value on a daily basis. Naturally, this drop in value does not inspire confidence in cryptocurrency as a means of payment, nor does it help to make cryptocurrencies more widely accepted.

 

Consider the following scenario: you are in the process of selling a house, but by the time the sale is completed, the cryptocurrency in which you were paid has lost 10 to 20% of its value (also imagine if it gained 10 to 20 percent in value). To become mainstream and widely accepted, cryptocurrencies must be simple, decentralized, and stable.

This is a solution based on a stable coin. This is a cryptocurrency with a stable value because it is linked to another asset such as gold, fiat currency, or other cryptocurrencies. Stable coins have a one-to-one ratio to what they are pegged to, for example, Tether is a stable coin that is pegged to the US dollar, with 1 Tether equaling US$1.

As a result, an investor can exchange one Tether for one US dollar. The implication is that for each Tether, there should be the equivalent amount of money in a bank account controlled by a neutral third party to back it up. Daily transactions are convenient in the short term, but they improve value storage in the long term. i.e. a way of saving or insuring oneself.

Stablecoins are the next step in the evolution of cryptocurrencies, and they have the following advantages over other types of cryptocurrency:

 

  1. It provides investors with the confidence to hold currencies for the long term because they will not lose value as easily.
  2. It simplifies daily transactions by removing the fluctuations that can occur.
  3. Stable coins can lead to widespread cryptocurrency adoption.

 

Stable coins include the following:

  1. True USD Gemini Dollars [GUSD]
  2. USD Coin [USDC]
  3. Tether [USDT]
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So, who is making use of Stable coins?

Tether is a stable coin that is 100 percent backed by fiat currency held in a reserve account at a 1:1 ratio. This means that you can exchange your tether (subject to their terms and conditions) for the equivalent US dollar.

Libra is a new Facebook project that will use a stable coin for its full-service payment network. The coin will be backed by a government currency, which will eliminate credit card fees as well as, more importantly, volatility. Even better, Facebook users will be rewarded with coins for viewing ads and making purchases, which is something to look forward to. formalized paraphrase (Eric Ongeri).

What’s the distinction between a stable coin and a cryptocurrency?

Cryptocurrency is a type of digital currency that uses encryption to regulate the currency and verify funds transfers. (Incidentally, such verification is made possible by blockchain technology, a digital ledger in which transactions in a cryptocurrency like Bitcoin are chronologically and publicly recorded.)

Today, cryptocurrency is regarded as a “store of value,” rather than a currency that can be used to purchase everyday goods and services. The value of cryptocurrency, like gold or diamonds, is determined by how much people believe in it, which has made cryptocurrency extremely volatile. Stable coins, on the other hand, are linked to actual fiat currency.

What causes a Stablecoin to be stable?

Because stable coins are tied to fiat currency rather than volatile crypto markets, they have the potential to smooth out crypto’s historical volatility. (The lack of regulations varies by country, which may contribute to the volatility of the crypto market.)

Furthermore, stable coins may aid in the mainstreaming of cryptocurrency by allowing cross-border transactions — village to village, region to region, country to country — to take place with little to no interference, in more transparent, efficient, and cost-effective ways. – formalized paraphrase (Mark Brinkerhoff ).

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