The Essence of Stablecoins

Cryptocurrencies were originally envisioned as a decentralized payment means, independent of fiat money rates and not tied to traditional valuable assets.

This peculiarity adds cryptocurrencies a characteristic feature — high volatility of the rate. Many folks gain thanks to this feature, but the possibility that the rate can dramatically drop or leap hinders the usage of cryptocurrency as a full-fledge payment means.

In order to regulate the rate, it was decided to tie up cryptocurrencies to stable assets that have long been established in the economy. Thus, they began to tie up the value of cryptocurrency to fiat money, gold and oil. Digital currencies can be tied up to any valuable asset or commodity which can make their value more stable.

Cryptocurrencies pegged to physical assets have a lower rate volatility and became known as stablecoins. Stablecoins are a compromise between fiat money and cryptocurrencies.

Most often, the value of a stablecoin is pegged to fiat money. The value of these coins is equal to that of fiat currency and represents a sort of a promissory note. Every coin is leveraged to one unit of fiat money, for instance, dollar, which acts as a guarantee and provides for the value of the currency.

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We will briefly tell about the most popular stablecoins:

Tether (USDT) is the most famous stablecoin, and it is represented in the majority of exchanges. However, Tether Limited company which belong to Bitfinex crypto exchange, has regular problems with its audit. The main discontent is about issuing a colossal amount of USDT (equivalent to hundreds of millions of dollars) during the periods of bitcoin pumps. Anyway, the coin is stable and for the last 2 years it has been traded within the range of 0,96$ — 1,06$.

USD Coin (USDC) was created with the participation of the company that bought Poloniex crypto exchange in 2018. This is a classic stablecoin which is backed by dollar equivalent in relation of 1 to 1. The proof of the project’s transparency is its monthly audits performed by an independent party.

TrueUSD (TUSD) is a coin which is also backed by US dollar in relation of 1 to 1. Financial flows are regulated by trust companies, while the developers do not have access to accounts. TUSD is created on Ethereum platform, the work system is based on smart contracts. Reports are published monthly and they prove correspondence between issued coins are real funs in the company’s accounts.

Paxos Standard Token (PAX) is a stablecoin approved by Department of Financial Services of New York. It is backed by dollar equivalent in the relation of 1 to 1. PAX is also developed on Ethereum platform. We have recently added this token to our monitoring

Dai (DAI) is an unusual stable coin. Its value is backed not by an account with an equivalent amount in US dollars, but by a system of guarantees from several famous and specially created cryptocurrencies. Its advantage is decentralization.

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It’s worth noting that Binance exchange, a leader by the trade volume, is going to issue its own stable coins within the coming two months. The management of the exchange says they are planning to launch stablecoins pegged to various currencies. According to them, from the user’s point of view, dollar is used only in several parts of the world, while other users use different currencies. They think that this must be reflected in their stablecoins

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What do you think about the future of new stablecoins from Binance and how would they influence today’s leader Tether?

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