What are Stablecoins? – Talking about cryptocurrencies, you will always be reminded of one fundamental problem that has not been able to be overcome until now, namely price volatility. Cryptocurrency is considered as the newest digital currency.
Not a few people also think that crypto currency is a promising investment asset in the future. However, the price volatility of cryptocurrencies has made some people consider not using them.
In order to overcome the price volatility of cryptocurrencies which tend to be unstable, a new coin called stablecoin has emerged. What are stablecoins?
What are Stablecoins in the Cryptocurrency World
Stablecoins are digital assets in the form of tokens, like cryptocurrencies, which are designed in such a way that they mimic the concept of fiat currency. Similar to stablecoins with the concept of fiat currency, stablecoin prices tend to be stable compared to other cryptocurrencies.
Cryptocurrencies in the form of bitcoin and ethereum do have a high value when exchanged for other fiat currencies. However, the uncertain volatility makes bitcoin and ethereum often overlooked by investors.
The volatility of digital currencies, such as bitcoin, is due to the fact that blockchain technology is still new and the cryptocurrency market is still relatively small and not yet widespread. Therefore, stablecoins emerged as a solution.
Stablecoins themselves are actually just a kind of token that represents another form of fiat currency. So, when people save money or invest their funds in fiat currency, people are able to convert it to stablecoins worth the fiat currency they have.
Thus, price volatility that occurs in tokens like bitcoin and ethereum will not apply to stablecoins.
Types and How StableCoin Works
Ada beberapa jenis stablecoin yang didasarkan pada cara kerja mereka masing-masing. Setidaknya ada tiga jenis stablecoin jika dibedakan berdasarkan cara kerja stablecoin itu sendiri, yakni stablecoin yang didukung fiat, stablecoin yang didukung mata uang kripto, dan stablecoin algoritmik.
1. Fiat-backed stablecoins
Fiat-backed stablecoins are stablecoins that embody fiat currency investments made by investors. So, when investors want to own stablecoins, they simply exchange the fiat currency they have in the form of stablecoins.
In this type of fiat-backed stablecoin, the ratio created by the issuer or bank issuing the token is 1:1. That means, the value of the fiat currency that is owned is the same as the value of the stablecoin that will be owned later.
For example, there is a person who has ten million dollars worth of fiat currency, then that person will be able to get a stablecoin that is also worth ten million dollars. The person only needs to deposit the money with the depository bank and stablecoin token issuer.
However, these fiat-backed stablecoins will be at considerable risk in terms of the credibility of the depositary institution. This is due to whether the institution is really able to save money safely or not.
2. Cryptocurrency-backed stablecoins
Stablecoins backed by cryptocurrencies are in principle similar to stablecoins backed by fiat currencies. It’s just that the collateral used in this type of stablecoin is the crypto currency that is usually used.
In addition, to get stablecoins backed by this cryptocurrency, users must use smart contracts. The user will lock the cryptocurrency on the contract that has been created to issue the token.
In addition, to get stablecoins backed by this cryptocurrency, users must use smart contracts. The user will lock the cryptocurrency on the contract that has been created to issue the token.
The system used in this type of stablecoin is usually based on the number of votes taken from users. Decisions about what to do in the service will be determined through the largest number of votes from users.
3. Stablecoin algoritmik
Many people say that this type of stablecoin is not guaranteed. However, this statement appears to be wrong. Algorithmic stablecoins have some kind of pool or container to hold guarantees from users. This guarantee will later be used to handle highly volatile market movements.
In addition, algorithmic stablecoins have a circulation system similar to a central bank within a country. Usually, algorithmic stablecoins will follow a certain fiat currency as a benchmark for the number of stablecoins circulating in the market.
For example, if a stablecoin in circulation appears to be priced below the fiat currency it is trading in, then the amount of supply of stablecoin on the market will be withdrawn to increase the price of the stablecoin.
Meanwhile, if the stablecoin price becomes higher than the fiat currency being followed, then the amount of stablecoin supply will be added to reduce the stablecoin price until it is equal to the fiat currency being followed.
List of Stablecoin Names in the World
To date, there are around 40 stablecoins traded worldwide. What are the stablecoins in the world today? The following is a list of stablecoins around the world:
Tether (USDT), USD Coin (USDC), Wrapped Bitcoin (WBTC), Binance USD (BUSD), DAI (DAI), TerraUSD (UST), Reserve Right Token (RSR), Paxos Standart (PAX), Fei Protocol (FEI), TrueUSD (TUSD), HUSD (HUSD), Neutrino USD (USDN), SUSD (SUSD), VAI (VAI), FRAX (FRAX), Gemini Dollar (GUSD) (GUSD), Stasis EURO (EURS), Rupiah Token (IDRT), Italian Lira (ITL).
So, that was a brief overview of what stablecoins are, namely their meaning and types. For those of you who are new to the world of crypto currency, this knowledge is very important for you. Maybe that’s all, hopefully useful. See you in the next content.
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