Stablecoin is a class of cryptocurrencies that peg its market value to some external reference. For example, a stablecoin can peg its value to a commodity price like gold or a currency like dollars. Today, stablecoins are highly valued because they attempt to offer price stability backed by reserve assets. It offers security and privacy of transactions, instant processing and volatility-free stable valuation of fiat currencies.
The stablecoins are an attempt to bridge the gap between fiat and cryptocurrencies. Stablecoins are categorized into three categories based on their working mechanism:
- Fiat-collateralized stablecoins: It keeps fiat currency reserved as collateral to issue a certain number of stablecoins. Other forms of collateral include gold, silver, oil but most fiat-collateralized stablecoins use dollar reserves.
- Crypto-collateralized stablecoins: It is backed by cryptocurrencies. Because cryptocurrencies are highly prone to volatility, these stablecoins are over-collateralized.
- Non-collateralized (algorithmic) stablecoins: These stablecoins do not involve any reserve collateral but implement a working mechanism like that of a central bank to maintain the stability of the price.
Some of the most popular stablecoins are:
Market Cap: $62,622,215,848
Exchanges: Binance, Huobi and many more
Market Cap: $3,007,694,960
Exchanges: KuCoin, OasisDEX, Coinbase and many more
Gemini Dollar (GUSD)
Market Cap: $177,025,649
Exchanges: Uniswap, Bitstamp, EXMO and others
Creating stablecoins offers numerous benefits to both small-scale investors as well as large investors because they are designed to maintain liquidity and lower transaction fees.
The benefits of building Stablecoins
The transaction fees across significant credit card companies, including MasterCard and Visa, charge about 2 percent per transaction. Due to this, many people choose to deal in cash to avoid high transaction fees. However, such high transaction costs can easily be circumvented with stablecoins and provide value to customers and businesses.
Stablecoins make the financial processes faster. Banking and settlements with stablecoins allow transactions at high speed all the time since the blockchain operates in a decentralized manner without central institutions with set hours.
Blockchain technology allows transactions to be viewed from an explorer by anyone with internet access. It ensures maintaining absolute transparency in the processes by which stablecoins are backed through regular audits.
Stablecoins offer widespread integration that is traded easily at various exchanges like goCoin and Bitfinex.
Stablecoins are fundamentally made up of code and features which can easily be added to make them adaptable to the changing needs. For example, Walmart’s upcoming stablecoins are built with the added functionality of a loyalty program on top of the company’s branded stablecoin. Through this added functionality, loyalty becomes directly integrated into the user experience. It allows users to check their loyalty rewards on a single app and quickly check the balances of their stablecoins.
Since a stable asset or fiat currency backs stablecoins, it eliminates volatility and can easily sustain ever-changing monetary values.
Organizations are always emphasized to create cryptocurrencies with the least volatility and more liquid digital asset. Stablecoins are the holy grail to the crypto world. It facilitates transactions effortlessly between stakeholders dealing with cryptocurrencies and among parties who shuttle between crypto and fiat. If you have an idea of building a stablecoin for your business, you should work with stablecoin development professionals who can help you provide complete insights on how stablecoins will benefit you and build a stablecoin successfully.