What are Stablecoins?

What are the Stablecoin ? In recent months it has been above all Bitcoin and the other Altcoins – from Ethereum to Litecoin – that have attracted the attention of investors. Staggering earnings, of course, but also a growing volatility : for this reason, Stablecoins are gradually establishing themselves as a valid alternative to the more widespread virtual currencies.

Stablecoins, as the term suggests, are in fact stable cryptocurrencies , not exposed to that fluctuation in prices typical of the crypto market. But what makes them invulnerable to volatility? Below is a guide on the characteristics and main types of Stablecoin.

Stablecoin: what are they?

Stablecoins, therefore, are cryptocurrencies which, unlike the much talked about Bitcoin and its competitors, do not suffer from volatility. The reason is obvious: the Stablecoins are anchored to another financial asset .

An element of strength, this, since one of the criticisms that are traditionally advanced to Bitcoin and other Altcoins is related precisely to the instability of their quotation, which could jeopardize their use as means of payment .

In summary, therefore, the Stablecoins maintain the revolutionary components of cryptocurrencies by removing their weak points: these virtual currencies, in fact, operate in the context of decentralization dear to cryptocurrencies and their investors, but – at the same time – guarantee that high degree of stability that Bitcoin, Ethereum or Litecoin cannot offer.

Three types of Stablecoin

Now, based on the financial asset to which they are connected, we can distinguish three types of Stablecoin:

  • Stablecoins anchored to fiat currencies : some Stablecoins, to fend off the risks of volatility, are anchored to fiat currencies such as the dollar or the euro, or even gold. The procedure involves the deposit of a sum as a guarantee – in euros, dollars or pounds, depending on the asset to which the Stablecoin is linked – in a bank account.
  • Stablecoins anchored to other cryptocurrencies : some investors, however, want to break away from the traditional payment structure, and use cryptographic assets as a guarantee of stability. Usually these Stablecoins are anchored to different cryptocurrencies to mitigate the risks of volatility.
  • Stablecoins not anchored to an asset : there are also unsecured Stablecoins. Also known as fiat Stablecoin, these cryptocurrencies function like fiat currencies in the traditional banking system: a sort of crypto central bank regulates the supply and demand of cryptocurrencies based on rules encoded in a smart contract.

What are the main Stablecoins?

At present, the best known – and widespread – Stablecoin is Tether , created in 2015 under the name Realcoin. Stablecoin, managed by a central authority, Tether limited, is pegged to the dollar, euro or Chinese yuan.

The most traded Stablecoin in the world, on the other hand, is TRUE USD , created in 2018. This cryptocurrency, pegged to the dollar, uses an erc20 token to be stored in a digital wallet and relies on smart contracts to certify the parity between reserves and issued tokens.

Then there are Staxos Standard , Stablecoin created in 2018 and backed by the financial services department of the NYSE (New York Stock Exchange), and Digix Gold , a cryptocurrency anchored to the ‘gold – a token equal to one gram of the asset – which relies on the Ethereum blockchain.

Also worth mentioning in the list of the most widespread and reliable Stablecoins are Gemini Dollar , MakerDAO , USD Coin , bitUSD ( pegged to the greenback), Statis EURO (pegged to the European currency) and Alchemint Stantards (linked to the Singapore dollar).