In the world of cryptos there is more and more talk about stablecoins, but what are they really?
These types of coins are also becoming more and more popular. It is a type of cryptocurrency linked to an “asset” such as the US dollar that does not change much in value. Many of the dozens of stablecoins now in circulation use the dollar as their benchmark asset. But many are also linked to other fiat currencies issued by governments such as the Euro.
stablecoins
The handy thing about this is that the price is not as volatile as with the cryptos like Bitcoin. The latter is, of course, very sensitive to emotions. Because of this, there are many ups and downs. This can also bring benefits, but that’s not what the stablecoins are for.
The first stablecoin dates back to 2014. This was Tether, many stablecoins are based on this coin. Users receive one token for every dollar they deposit. In theory, the tokens can then be converted back to the original currency at any time, including at a one-to-one exchange rate.
Market and features
62 billion dollars (!) was outstanding at the end of July Tether. This is just over half the market cap of $117 billion of all stablecoins worldwide. The second largest is known as USD Coin, has a market cap of approximately $27 billion.
Stabelcoins were initially widely used to buy other cryptos. This is because many cryptocurrency exchanges did not have access to traditional banking. They are much more useful than ‘normal’ coins because they can be used 24 hours a day, seven days a week, anywhere in the world. And this without being dependent on banks. Transfers take a few seconds to complete.
The stablecoins also work with smart contracts on blockchains. You do not need a legal authority to do this. The code in the software automatically determines the terms of the agreement and how and when money is transferred. This makes stablecoins programmable in ways that dollars cannot.
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