Stablecoins are digital currencies that are made to work like fiat currencies, except that they exist on the blockchain. There are many different kinds of stablecoins, and each one has its own way of keeping a 1:1 exchange rate with their respective fiat currencies. In the following article, let’s learn about the origin and role of Stablecoin in the most detail.
History of Stablecoins
A stablecoin is a cryptocurrency that relies on a stable asset to base its value. Typically, stablecoins will be linked to fiat currency, such as the US dollar, but they can also have a value pegged to precious metals or other cryptocurrencies. Compared to other cryptocurrencies on the market, Stablecoins are less volatile.
Read also: Stablecoins: Can Be Considered as “Form of Money”?
Stablecoins come in different forms. Tether (USDT), which came out in 2014, is known as the first and largest stablecoin. About 85 percent of Tether’s assets are cash, cash equivalents, short-term deposits, and commercial paper. There are also other stablecoins like Dai, Binance USD, and TerraUSD that are popular but have a smaller market capitalization.
In economics, changes and new ideas are driven by both what people want and what they need. Money is something that changes all the time. Since ancient times, people have tried to use different things, like gold and silver in 3,000 BC, to make a single measure of value.
As international trade grows, countries need to come up with a simple way for everyone to pay. So, fiat currencies like the US dollar, the Japanese yen, or the euro are issued. This makes it possible for the financial system to keep growing.
With the speed at which technology is changing, blockchain technology is introduced as a great way to do things that have many benefits and break the power of the mainstream banking system, which has been around for hundreds of years. Thanks to the fact that it is transparent, has processing speed, and doesn’t require going through a third party.
What Role They Play
Even though cryptocurrencies are becoming more popular and are accepted in a growing number of countries. But because prices change a lot, people need to find ways to help stabilize them. Stablecoin is the ideal financial tool because it gives users things like:
- It is a convenient means of payment.
- Can accumulate value.
- Withstands little volatility.
- Keep support costs low.
- Provides good scalability.
- Supports privacy and decentralization.
- Flexible enough to adapt to local regulations or changes.
- Provide transparency for buying and selling transactions.
Stablecoins are being used and accepted all over the world more and more in 2019 and 2020. This is a turning point for the stablecoin ecosystem. Stablecoins are much less volatile than traditional cryptocurrencies because their prices are directly tied to the exchange rate of the real asset. This makes it possible for the cryptocurrency industry to grow in new ways.
Conclusion
Overall, stablecoins are a promising new technology with the potential to revolutionize the way we think about money. However, it is important to be aware of the risks associated with stablecoins before investing in them. Stay tuned for part 2, where we will distinguish four main types of stablecoins on the market.
Disclaimer: The information in this article is not investment advice from CryptoChill. Overall, cryptocurrencies always carry many financial risks. Therefore, do your own research before making any investment decisions based on this website’s information.
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