Love Crypto But Not Its Volatility? Meet Stablecoins 0 79

Today, there are 180 currencies across the world that are recognized by the United Nations,
from the US dollar to the European Euro to the Japanese Yen, and more.

Across global economies, these currencies are often used to buy goods and services.
Despite inflation, fluctuating exchange rates, and other factors, the value of most of these
currencies is subject to very little change on a day-to-day basis.

This allows several economies to rely on the use of these government-issued currencies to
operate. In other words, you can buy a loaf of bread from your favorite baker and pay $3.50
for it today knowing that it’s highly unlikely that it would drastically drop to 99 cents
tomorrow.

Stablecoins, in the form of digital money, aims to mimic traditional, stable currencies.
In general, a stablecoin is a cryptocurrency that is collateralized to the value of an underlying
asset. What that underlying asset may be varies from coin to coin.

Many stablecoins are pegged at a 1:1 ratio with certain fiat currencies, such as the US dollar
or the Euro, which can be traded on exchanges. Other stablecoins can be pegged to other
kinds of assets, such as precious metals like gold, or even to other cryptocurrencies.
Stablecoins are not subject to the extreme price volatility that other cryptocurrencies are
affected by.

There are a few types of stablecoins in the market currently and they are categorized into
different types.

Fiat-Collaterized Stablecoins

The most popular stablecoin is Tether (USDT), which is currently the 9th largest
cryptocurrency by market capitalization and has the highest daily trading volumes of any
cryptocurrency, just after Bitcoin.

For this reason, many new fiat-collateralized stablecoins have risen up in attempt to take
Tether’s place.

Commodity-Collateralized Stablecoins

Commodity-collateralized stablecoins are backed by other kinds of interchangeable assets,
such as precious metals. The most common commodity to be collateralized is gold —
however, there are also stablecoins backed by oil, real estate, and baskets of various
precious metals.

Holders of commodity-backed stablecoins essentially hold a tangible asset that has real
value — something most cryptocurrencies do not have. These commodities even have the
potential to appreciate in value over time, which gives increased incentive for people to hold
and use these coins.

Digix Gold (DGX), for example, is an ERC-20 token (built on the Ethereum network) backed
by physical gold, where 1 DGX represents 1 gram of gold. This gold is stored in a vault in
Singapore and gets audited every 3 months to ensure transparency. The creators of DGX

claim they have “democratized access to gold.” DGX holders may even redeem the physical
bars of gold — they just have to go to the vault in Singapore to do so.

Crypto-Collateralized Stablecoins

These are stablecoins backed by other cryptocurrencies.

This allows crypto-backed stablecoins to be much more decentralized than their fiat-backed
counterparts, since everything is conducted on the blockchain.

To reduce price volatility risks, these stablecoins are often over-collateralized so they can
absorb price fluctuations in the collateral.

For example, to get $500 worth of stablecoins, you would need to deposit $1,000 worth of
Ether (ETH). In this scenario, the stablecoins are now 200% collateralized, and can
withstand a price drop, let’s say, of 25%. This would still mean the $500 worth of stablecoins
are collaterized by $750 worth of ETH.

Stablecoins-Collateralized Stablecoins

Despite Stablecoins like USDT or PAX being back by a trust, there it still a chance that the
funds are not secured. Crypto-collateralized Stablecoins like DAI also poses a threat when a
black swan event occurs. If the collateral loses too much value, the system become under-
collateralized and fallback procedures could be enabled, such as Stablecoin liquidation.
The introduction of Stablecoins-Collateralized Stablecoins seeks to consolidate Stablecoins
and redistributing them again as another stablecoin, it seeks to mitigate the risk of default by
any single entity or a black sawn event.

One such example is US-Stable-Dollar (USSD), a Stablecoins-backed token whose value is
stable relative to the US Dollar running on the Satoken blockchain.

Looking ahead

Cryptocurrencies are still in their infancy, and this is even more true with stablecoins. This
new form of digital currency is still taking form and has a long way to go before potentially
reaching maturity.

While it is impossible to predict what the future has in store in the constantly changing world
of blockchain, stablecoins could help bring cryptocurrencies as a whole to the mainstream.

Each form of stablecoin comes with its own unique set of benefits and drawbacks, and none
of them are perfect. Yet the value and stability they could provide to businesses and
individuals globally — by enabling universal access to established national currencies —
could be disruptive.

This is a paid press release, which contains forward looking statements, and should be treated as advertising or promotional material. CryptoRadar.org does not endorse nor support this product/service. CryptoRadar.org is not responsible for or liable for any content, accuracy or quality within the press release.

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