Short Introduction to Stable Coins
Published on: 28 Jun 13:27
In our last blog post, we touched briefly upon what a stable coin was. In this blog post, we’ll give you just a little bit more information on a stable coin and how it is benefiting cryptocurrency trading as a whole.
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WHAT IS A STABLE COIN?
In essence, a stable coin is stable — stable as currency can get. A stable coin is a cryptocurrency that is a hybrid between regular cryptocurrency (digital money) and fiat money (or what you commonly think of as currency that is physical and tied to a central banking system). A stable coin is pegged to another stable asset, such as gold or the United States dollar.
WHAT IS THE PURPOSE OF A STABLE COIN?
The purpose of a stable coin lies in its name — to be stable, which then translates to giving the cryptocurrency market stability. This is the main purpose of stable coins. However, an alternative purpose is that stable coins give people a way to enter the cryptocurrency market without all of the inherent volatility the cryptocurrency markets carry.
WHAT ARE THE TYPES OF STABLE COINS?
- Asset-backed (or fiat collateralized). These stable coins are tied to assets, designed to hold the collateral of their asset and trade at the asset’s value.
- Crypto collateralized. These stable coins are backed by another cryptocurrency. This is hopefully to achieve price stability in a decentralized market. The problem here is that you’re trying to stabilize a coin with an unstable cryptocurrency. However, over-collateralizing the cryptocurrency can solve this problem.
- Algorithmic (or non-collateralized). These stable coins are use rules in their code that is designed to match the supply of the token they represent with the demand, thus stabilizing their value. These are better for scalability and are overall a stronger coin to adopt.
HOW DO STABLE COINS HELP CRYPTOCURRENCY?
- Parking lot. Stable coins give investors a safe place to park their assets that they have earmarked for cryptocurrency, but for some reason or another, are not yet ready to invest. Converting from stablecoin to cryptocurrency and vice versa is quick and easy, and you don’t have to return to fiat currency, or asset-backed currency. The transactions fees are also less when converting back and forth than with fiat.
- Stabilize cryptocurrencies. This was the impetus for the invention of stable coins. Many people worry that without stability, the cryptocurrency market will never reach mass appeal and would only be used for speculation purposes. It’s hard to buy pizza when the price changes every 20 minutes, and you can’t pay people in cryptocurrency if after they get paid, the price of cryptocurrency plummets.
- Lead to widespread adoption of cryptocurrencies. When the cryptocurrency market is stable, it will gain traction. However, you need a stable market to do most activities, such as get a loan or save money. The more stable coin use grows, cDuel, an online cryptocurrency trading simulator, the more chance cryptocurrency has of becoming a mainstream currency.
WHAT IS THE FUTURE OF STABLE COINS?
Many cryptocurrency experts see the development of stable coins as vital to the growth of cryptocurrency. If a stable coin can appear that can have a reliable price that can be exchanged, you will see stability come into the cryptocurrency markets. If we are to achieve the original vision of a digital currency that is completely decentralized, we need a stable coin and thus a stable cryptocurrency market to achieve the end of hyperinflation, central government monetary systems, and mismanagement of the economies of some nations.
HOW CDUEL CAN HELP
cDuel is the best online trading simulator for cryptocurrency. We believe our service is much needed. People need to learn about cryptocurrency in a safe manner and experience what the cryptocurrency market is like. We offer cryptocurrency trading using real time market values, so you can experience the market volatility. You’ll compete against others and have fun doing so. Our mission is to spread the word about cryptocurrency. Help us achieve this goal. Visit our website today for this free cryptocurrency simulator!