One of the main things cryptocurrencies and stocks are famous for is their volatility. It’s what many value due to the fact that an investment into them has the ability to go up and down depending on market conditions. However, while most coins rise and fall in value over time, ‘stablecoins’ (for the most part) remain just that: stable.
What makes stablecoins stable in nature is the fact that they are generally pegged against a fiat currency which doesn’t fluctuate as heavily as other asset classes.
As stablecoins are typically not pegged to assets that experience high levels of volatility in market prices.These assets are typically not used for speculative investment. Stablecoinsexist to provide the same benefits of blockchain based cryptos, yet without the associated volatility. They can also be used to send quick and cheap cross-border payments and as a store of value.
Many governments are now proposing the use of stablecoins. Some recent examples include; the Russian CryptoRuble, the Swiss e-Kroner or the Estonian Estcoin.Stablecoins are playing an increasingly important role in the internet of tomorrow.. Growing in popularity, stablecoins have the potential to become a critical part of a global financial system.
Stablecoins are ’collateralised’, this means that they obtain their value from being ‘pegged’ to another asset. You will find that there are three kinds of stablecoins, linked to three separate classes of assets.
As the name suggests, these are tied to fiat currencies like the US Dollar, and are the most common type of stablecoin.
Probably the most well known stablecoin on the market is Tether, which is a fiat-pegged currency linked to the US Dollar.
These coins simply represent deposits of cryptocurrency, in the case of crypto-pegged stablecoins, each deposit must remain more valuable than the value of the stablecoin, in order to avoid losses.
A good example of a crypto-pegged stablecoin is Bitcoin BEP2 or BTCB. BTCB is pegged to Bitcoin and one BTCB will always equal one BTC.
Stablecoins are currently the most significant means by which money flows across the cryptosphere. They serve to provide a much needed bridge between exchanges, when fiat currencies cannot be moved between them directly. They also provide a huge benefit for citizens of countries where the national currency itself experiences high price volatility often due to hyper-inflation.
All of the above stablecoins can be quickly and securely traded on Australia’s most trusted exchange, CoinSpot. If you haven’t already registered for a CoinSpot account, you can do so for free here.