Stablecoins are digital currencies that imitate properties of traditional currency. Their exchange rates are tied to market prices of specific assets.
Why stablecoins are needed
They’re not at all volatile unlike other cryptocurrencies, while still keeping the same advantages: transparency, reliability of transactions, privacy, low fees and fast transaction speeds.
Types of stablecoins
Stablecoins can be one of several types: supplied and unsupplied.
Supplied tokens are tied to valuable assets. Stablecoins may be tied to traditional assets: fiat currency — USD, Euro, Ruble etc. (examples include USDT, USDC, HUSD), physical goods, such as gold (examples include DGX, PAXG, XAUT); as well as cryptoassets a.k.a. supplied by other cryptocurrencies (DAI is supplied by ETH, UST is supplied by Luna).
Stablecoins tied to fiat currency are centralized, controlled by one company (or a partnership of companies) and are an issuer. To maintain trust and reputation audit hosting is required (to confirm the supply of stablecoins with real assets). If a stablecoin is supplied by a traditional currency, all the law restrictions and risks of the actual currency dropping in value apply to it.
Unsupplied stablecoins aren’t tied to the value of other assets. USD works the same way: a couple decades ago it was tied to a gold reserve, but it’s stable to this day because people believe in its value.
The stability of this cryptocurrency is supplied by seigniorage — profits that emerge from the currency’s emission and are assigned as an issuer. Once demands rise, new stablecoins are minted to stabilize its price. If demands drop, coins are bought to lower the volume of that currency in roaming. Theoretically the price stays stable, it’s controlled by supply and demand.
This is the more decentralized and independent form of stablecoin. An example of such a coin is Ampleforth (AMPL), which was launched at the end of 2018. Its algorithms control supply and demand daily to avoid volatility, characteristic to supplied cryptocurrency.
Stablecoin use cases
- Common financial tasks
- Cross-region transfers and payments
- Fast and accessible transfers
- Quick and accessible way to buy and sell crypto
Stablecoins on Minter
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