It has been\na decade since the advent of the first cryptocurrency and till now, we have\nseen quite a few crypto coins that have emerged as a potential investment\noption or a fintech solution. We have seen many cryptocurrencies so far and\neach one of them brings some or other benefits to the users. So far, we have\ntreated most of the crypto coins as an option of investment but a large number\nof them are also considered as a fintech solution because they expedite the\ntransactions and make them faster, safer, and more cost-effective. They also\nallow you to have the complete governance of your assets sans any interference\nfrom the government or any other centralized body. <\/p>\n\n\n\n
In this\narticle, we are going to discuss stablecoin that has come into existence\nrecently and has gained plenty of attention because of its merits. <\/p>\n\n\n\n
What is Stablecoin?<\/strong><\/p>\n\n\n\n Stablecoin\nis one such cryptocurrency that has been created for reducing the volatility in\nthe crypto market. It comes with many noticeable attributes and one of them is\nthat be pegged against any exchange-traded commodity, precious metal, fiat\nmoney or another cryptocurrency. With this particular merit, stablecoin becomes\ntradable with any other aforementioned assets and its algorithm makes its\nworking more reliable for the users. It gains all these distinct features from\nits very development process and the method that is used in making this coin.\nStablecoin is created using the seigniorage-style that is different from the\nconventional method of forging digital coins, let us dig a little deeper to\nunderstand that fully.<\/p>\n\n\n\n Seigniorage<\/strong><\/p>\n\n\n\n It is a\nFrench word that denotes the difference between the cost of assets and the\nprice incurred for their production and distribution. However, the term is used\nfor multiple financial activities such as sovereign revenue, positive return,\ninterest-free loan, solvency constraints, and inflation tax as well. In terms\nof cryptocurrency, Seigniorage is an algorithm that helps in the creation of\ncoins without backing them against each other. It brings more value to the coin\nand makes it fungible with a wide array of assets. There are various purposes\nthat this coin serves and they make the trading of digital assets much more\nefficient and valuable. For getting a profound understanding of them, you need\nto be familiar with their very major characteristic.<\/p>\n\n\n\n What do you mean by backed\nstablecoins?<\/strong><\/p>\n\n\n\n The\nadvantages of stablecoins are many but the most prominent one is that they are\nasset-backed which makes them a reliable option for all the investors. They are\nhelpful in reducing the financial risk and are not correlated to each other as\nopposed to the other crypto coins that have a high degree of interconnectivity.\nThus, even if the value of commodities or stock falls, it finds some value\nbecause it is secured against multiple items. It finds the right value without\neven losing good faith in the market and gives plenty of options as many\nunderlying assets are there to support the holder. <\/p>\n\n\n\n There is a\nmechanism for redemption and it gets very easy for the analysts to control the\narbitrage in transactions. You also gain a high level of control and create a\nbetter example for the rest of the investors. With this cryptocurrency, it is\neasier to gain confidence without putting in high cost and volatility is always\nin check because of its ingrained preventive measures. Here are some types of\nstablecoin that you must get familiar with:<\/p>\n\n\n\n Commodity-Backed<\/strong><\/p>\n\n\n\n Commodity-backed\nstablecoins are pegged against industrial and precious metals such as gold,\nsilver, etc. They are lesser prone to inflation and give you the maximum scope\nof creation of assets without making the whole process hard to adhere to. There\nare some notable features that make this particular coin a preferable choice\nfor crypto enthusiasts:<\/p>\n\n\n\n The value is\nfirm and it involves multiple commodities, it is also very flexible when it\ncomes to redeemability of the coin.<\/p>\n\n\n\n There is an\ninclination towards establishing a free-market and it gives leeway for regulated\nand unregulated firms as well.<\/p>\n\n\n\n The\ncirculating supply of stablecoin is always maintained with the help of the\nalgorithm, it makes the inner mechanism more robust as well.<\/p>\n\n\n\n The\nconversion of real assets and their scope of redemption get more inclusive with\nbetter protocols and standards to follow.<\/p>\n\n\n\n The cost of\nmaintenance is also very low and it brings more storage capacity for the users.<\/p>\n\n\n\n One of the\nvariants of this token is Digix Gold Token (DGX)<\/p>\n\n\n\n Fiat-backed<\/strong><\/p>\n\n\n\n As the name\nclearly suggests, this type of currency is backed against a fiat currency that\nis regulated by a regulated financial entity like a bank or the government.\nUnder this system, the stability of the coin depends on the custodian and more\nresources are inducted if they are required. They can be traded on crypto\nexchange platforms and are redeemable by the issuer as well as the recipient.\nWhen it comes to managing the cost, you need to include everything which\nincludes activities like auditing, sanctioning of licenses, legal compliance,\nand infrastructure too. There could be some more costs involved if you try to\nmaintain the standards that the regulators have set. Here are a set of\ncharacteristics that make fiat-backed crypto a distinct asset:<\/p>\n\n\n\n The value is\ndetermined in a fixed ratio and it also extends to multiple currencies like the\nSwiss Franc, the Euro, and the US dollar.<\/p>\n\n\n\n When it\ncomes to off-chain transactions, you get a better assurance of payment and\nthere are absolutely no delays because of myriad deposits.<\/p>\n\n\n\n The\ncirculation of coins gets more backing by the stability of the coin and it\novercomes all the challenges that other cryptos face in transactions.<\/p>\n\n\n\n Libra, USD\nTether, and TrueUSD are the fiat-backed coin in the market right now.<\/p>\n\n\n\n Cryptocurrency-backed<\/strong><\/p>\n\n\n\n Needless to\nmention, this one is secured against cryptocurrency and brings a different\nmodel for keeping the collaterals in check. It differentiates from the other\nassets with a more reliable method and sets itself apart from the standard\ncrypto that depends only on smart contracts and timestamps for keeping the\nblockchain effective. It is a conducive solution when you want to handle\nseveral wallets together and want to minimize energy consumption. Using this\nsolution, you can actually tackle a large volume and make certain that nothing\nis out of control. It decreases the value of coins when you are looking for a\npotent mechanism for bringing the collateral and liquidation at the same page.\nHere are its chief attributes:<\/p>\n\n\n\n Another\ncryptocurrency or portfolio is collateralized for ascertaining its value.<\/p>\n\n\n\n The cost is\nevaluated by executing smart contracts.<\/p>\n\n\n\n The supply\nis also regulated by using smart contracts on the chain.<\/p>\n\n\n\n Other than\nthe collateral, but also the incentives and instruments are regulated. <\/p>\n\n\n\n nUSD, HAV,\nand Havven are the active crypto-backed stablecoins in the market right now. <\/p>\n\n\n\n Advantages of using a Stablecoin<\/strong><\/p>\n\n\n\n Among the\nseveral advantages that we get out of this coin is a reserve asset that holds\nour precious coin and maintains a balance among the different items it is\nbacked against. It gives you the scope of instant processing and keeps the\nsecurity aspect foolproof so there is no question of any sort of malfunction.\nThe privacy is intact and you don\u2019t have to worry about the volatility at all\nbecause the assets are stable and they give you a chance to deliver more value.\nIt becomes a preferred option for all those token holders who look for a chance\nto gain traction for their trading. <\/p>\n\n\n\n The\npreferences of buying and selling can also be changed and you can get more than\nyou expect out of a decentralized mechanism. In order to achieve high\nperformance and more assets, you need to think of all the possible scenarios\nand this is when you start corralling the derivatives as well. The algorithmic\nmechanism lets you choose the item that you want to secure as collateral, it\nalso allows you to incorporate more securities that are allowed in any other\ncryptocurrency. When you need assurance of fast transactions without any impact\nof efficacy, then stablecoin is the best option you\u2019ve got. <\/p>\n\n\n\n It does not\nonly change the dynamics of trading, but it also gives you the power to\ndominate the communities. It provides a safer method for keeping the valuation\nlow and you get to indulge in intraday trading as well. In 2019, the crypto market\nwitnessed an exponential rise in the number of crypto users who were inclined\nto invest in all the variants of this crypto. When it was launched in the month\nof November, its value was $5,950 and within a month, it shot up to $19,700. It\nhas also helped the traders in embracing a more advanced step that provides\nfoolproof protection to all the coins.<\/p>\n\n\n\n