What is a stable coin, and how to create them?
If you have not heard of what stablecoins are, or how to make them, it’s not an issue. This article will introduce you to what a stablecoin is and why it is steadily becoming popular. We will also look at its benefits and how to create one.
Definition of a stablecoin
A stablecoin is a cryptocurrency that leverages stable assets such as fiat currencies and precious commodities like gold and silver. With these assets backing stablecoins, they are less volatile and experience fewer price fluctuations than other cryptocurrencies.
Many companies are adopting stablecoins because they see it as the next big thing in the crypto world. The stability from being backed by stable assets, in addition to the decentralized nature of blockchain, serves as the key selling point of stablecoins.
The value of most cryptocurrencies is highly volatile. With the prices shifting wildly within short periods, a stable cryptocurrency is attractive to most investors.
The benefits of stablecoins include:
- Stable value
- Decentralized nature
- User privacy
- High security
The value of cryptocurrencies like Bitcoin is highly volatile. With shifts in its price in-between days being savage, it’s not strange to see the value move positively or negatively by a reasonable percentage within a short period.
Because of the unpredictable high worth, Bitcoin and other notable cryptocurrencies are viewed as absurd to utilize like fiat monetary standards.
Ideal money carries on as a method for financial trade. The ideal cash fills in as a method for holding financial worth, guaranteeing the steadiness of its incentive after some time. When the buying intensity of money is unsure, most of the general society abstain from utilizing it.
How Stablecoins are created
Based on how they are made, there are different types of stablecoins.
Stablecoins backed by assets
These stablecoins get their value from the value of the assets that back them. These assets also give the stablecoins an honest look to investors and help in their adoption.
A notable example of a stablecoin that leverages on assets is Tether. With a market-capital valued at 2.2 billion dollars, Tether is built with blockchain as a foundation and one USDT() corresponding to a 1:1 ratio.
Although there have been scandals surrounding Tether due to some fraudulent activities, it still serves as a significant reference when it comes to the possibilities and features of stablecoins that leverage on assets.
Stablecoins that leverage on algorithms
One thing about asset-backed stablecoins is that unlike cryptocurrencies, they’re not decentralized. Hence, crypto advocates believe that rather than assets, stablecoins should be based on algorithms that get value from the demand and supply equation.
An excellent example of such algorithms is the one utilized by base coin keep in order, the token supply on a need basis.
Stablecoins serve as a more stable, less volatile digital asset, with the ability to facilitate exchanges between two cryptocurrencies and even transactions between crypto and fiat. Understandably, stablecoins are gaining more recognition.