Stablecoins (English stable – stable, coin – coin) are cryptocurrencies designed to minimize price volatility. This minimization of volatility in cryptocurrency rates (most often against the US dollar) indicates how much these stablecoins differ from more volatile cryptoassets, such as Bitcoin, which lack a built-in price stabilization mechanism.
The value of tokens is tied to the value of other digital assets. A crypto-backed stablecoin works in the same way as a fiat-backed stablecoin. However, instead of using fiat, cryptocurrency is blocked as collateral, with not one coin, but two. Thus, price fluctuations and risks are compensated. Today, stablecoins such as Tether are used by crypto traders to tackle volatility.
Of course, the stablecoins, cryptocurrency stablecoin list of which we offer you, are not all projects of this kind, and there may well be coins that we do not consider here, but they seem interesting to you. If such a situation arises, then you just need to make sure that a sufficiently reputable organization with a good reputation is behind the coin.
The first generation of Stablecoins
Since the inception of Bitcoin, its volatility has been and remains very high. Stablecoins have become an alternative. They are in response to requests from the community for more stable defensive instruments that can serve as a means of settling with a fixed price, or preserving the value of underlying assets like BTC and ETH during price spikes.
Most of these coins are pegged to the US dollar, but there are also currencies backed by gold or other raw materials. It was the dollar that provided the first massive “stable” cryptocurrency Tether (USDT), which became available to market participants in 2014. USDT (1 USDT ~ $ 1) was used by crypto traders as a tool to lock in profits from trading without the need to withdraw the resulting assets to fiat.
Stablecoins are divided into three main types:
- Backed by traditional assets (traditional collateral). Assets – US dollars, gold, oil and other material resources.
- Secured by cryptoassets (crypto collateral). Assets – other cryptocurrencies.
- Algorithmic (algorithmic).
Algorithmic stablecoins
Stablecoins of this kind obey a set of rules written in the code of the distributed platform. The rules balance the supply and demand for cryptocurrencies.
Advantages – flexible scalability (no additional assets are needed to ensure the emission), as well as incentive mechanisms for participants, which make it possible to earn. Most of these mechanisms are integral to the algorithmic stablecoin architecture.
Of the projects that everyone knows about, Basis can be called. In 2018, the creators of Basis raised about $ 135 million from investors. The latter were attracted by the idea underlying stablecoin – calculating the value of a currency based on a large number of factors, including the price of tangible assets. Basis developers planned to combine the best qualities of fiat and cryptocurrencies in their project. This stablecoin was offered as a stimulus for the development of the economies of developing countries. Unfortunately, the Securities and Exchange Commission (SEC) has banned the company from issuing its currency. After that, the founders of Basis returned the invested funds to the investors.
Other projects worth mentioning are Terra and Carbon. Their principle of operation is similar to Basis. The main plus is a high degree of decentralization compared to other types. True, their development is also more expensive, since they are technically more complex products.
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