Are Stablecoins The Future Of Cryptocurrencies

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Can Stablecoins Be The Future Of Cryptocurrencies Or It Is Just Another Cryptocurrency?

By coinbreze on Altcoin Academy

Cryptocurrencies are money’s potential. Global leaders are simply driven towards blockchain technology and this is one of the main reasons for cryptocurrencies that are proliferating in growth. Further coins were added in the industry as a consequence of such coin growth. Nonetheless, accountability, responsibility, etc. are all offered with each blockchain technique, somehow people are losing confidence because of the possibility of uncertainty.

Stability is the main issue that is missing in any cryptocurrencies. So, where there is a problem, the solution should lie just inside the complex pattern of the problem area. All you need to do is concentrate and untangle any circumstance that causes the problem. Shortly after you find the source, the remedy will be served in a tray.

So stability can only be achieved if the cryptocurrencies are coupled with some stable commodities. Here comes the solution to the crypt–the market in the form of secure coins.

So, What Exactly Are The Stable Coins?

The cryptocurrency subdivision is backed up by certain stable elements that store value, such as fiat currencies, gold stakes, etc. As a consequence, there is also the ability to store money as cryptocurrencies. Usually, USD is the global currency and the first fiat chosen to back the cryptocurrency, but now Euro, Yen is also used to back up new cryptocurrency forms. They are referred to as stable coins with less associated volatility risk, including value storage. These two characteristics make stable coins more welcoming to the industry.

The first wave of secure coins arrived after three years of bitcoin broadcasting in the market from the Omni blockchain platform, called Tether, which holds USD Dollar value.

Why Are The Companies Searching For Stability In Cryptocurrencies?

Cryptocurrencies break down all the time barriers and try to find a way out of mass adoption. This approach to global adoption required the trust of major industries and support for cryptocurrencies. The undeniable fact is that there is a lack of stability. Even though the road is paved with every clarification to the consumer that cryptocurrency will be the currency’s future, someplace investors are not embracing the scenario.

Technology that always delivers a solution has now arrived with a mixed solution that protects all the properties of cryptocurrencies of stability. Stable coins, paired to fiat currencies, are having the best influence on the cryptocurrency market. The best strategy is to merge enterprise and cryptocurrency with a stable platform without losing the basic structure of blockchain technology.

Which Are Stable Cryptocurrencies?

USD-backed stablecoins rule this sector for example Tether’s USDT, TUSD, Paxos Standard Token (PAX) Circle’s USDC, DAI, EURS, and GUSD, etc. Now Stable coins are more preferable for the investors to maintain a proper business relationship with the blockchain industries. Most preferable blockchain these stable coins are used ethereum blockchain as it ensured the fasted and safest transaction among all. Other blockchain platforms involved to improve the structure of stable coins are Nuits, EOS, Omni, Tron, and Binance chain.

The market capitalizations of these coins are as follows:

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Among the cryptocurrencies, stable coins are more functional and promise a better store of values. Every stable coin value maintained with the value possessed by its currency origin from which it is backed. Most of them provide 1:1 return for any trading purpose.

Stable coins consist of better security and are designed with fiat values. Therefore, stable coins are linked to fiat currencies, and the value will be decided by fiat actions. Having a good store of value Stable coins can be transferred to any cryptocurrencies that make them popular in the industry. The variable keeping secure cryptocurrency is widely accepted in the industry that it is easy for crypto to exchange. If some cryptocurrencies do not support a fiat transaction, stable coins will become the solution.

Not only does the crypto path to fiat trading make it easier for most crypto coin industries to rely on stablecoins. To circumvent banking regulations and jurisdictional rules, cryptocurrencies use cryptocurrencies for fiat trading by stable coins. As these stable coins are linked to Fiat currencies, banking systems are friendlier to them. To remain in the crypto-industry, crypto transactions are mandatory for any exchange platform or cryptocurrencies. Stablecoins can be easily transferred to other cryptos and vice versa, and converting stable coins to fiat is acceptable to any platform.

How Regulators Have Taken Steps On Stable Coins?

Most countries were more friendly about regulating stable coins. Crypto-friendly countries have embraced secure coins as a better source of interaction. Policies may, however, differ from one another.

Like the US, it has decided to regulate every stable coin with the nature of its stability. That means how these stable coins are backed, whether they come from USD, EURO, or some stable commodities. The reliability level will be preserved in the various forms of the regulatory system.

Some countries are planning to launch state-owned stable coins that will provide more security, insurance or finance. Just as China recently announced, after two years of high regulatory legislation, that it will soon be launching a new cryptocurrency on the market to strengthen the economic platform. For this cause, the newly revised law on cryptocurrencies must begin from 1 January. These rules pave the way for China’s new cryptocurrency.

Is Adoption Of Stable Coin Possible In The Mainstream?

If any coin guarantees the potential of value and can eliminate the risk of volatility, it may be accepted as a mainstream currency. Because stablecoins have a lower price risk and are backed by fiat currencies that have assured stability, they will be accepted in the mainstream. However, the risks are still associated with stablecoins, which make investors jump in the industry with the trust of stable coins. The most important issue here is the lack of transparency.

Even though most of the stablecoins stuck through the fiat currencies found the difficult way to follow the standard. Like the Libra of Facebook, which is assured stablecoin will soon be launched in the year 2020. But the regulator doesn’t give it a clear way to get through. Due to a lack of transparency and security reasons, Libra is being severely scrutinized in front of Congressman.

There is no question that stablecoin is required in the crypto industry to fix the mistake that recent technology has failed to make. Nevertheless, no organization is capable of delivering a lightweight and controlled cryptocurrency stable system that can be widely adopted throughout the world. We will not only have stability but visibility, safety, pace and all the other features that are idle for any cryptocurrency.

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Reference ID: #dde41840-779f-11ea-8fbc-f381e86bccce

Bitcoin has plunged from a high of almost USD 20,000 in December 2020 to as low as USD 3,400. So it’s understandable that some cryptocurrency users might be looking for more stability. With the future of Bitcoin and other cryptocurrencies uncertain, a possible new solution known as “stablecoins” has emerged. This cryptocurrency aims to hold its value better than others, which could offer investors more stability.

Cryptocurrencies are digital tokens that act as a form of currency, effectively allowing people to perform transactions without a bank or intermediary. Most cryptocurrencies have no intrinsic value, and get their price from what others will pay. This, alongside price speculation from those hoping values will rise, has led to significant price volatility in cryptocurrencies.

Unlike other cryptocurrencies, stablecoins aim to maintain their worth better by being redeemable for something else of tangible value, like regular fiat currencies such as US dollars, or even gold.

The stablecoins’ underlying asset (the monetary value that investors expect it to trade at) would normally be deposited with a trusted bank. If people are confident they can redeem these coins in exchange for said currency, and that the issuer has sufficient reserves for all coins in circulation, the price of the stablecoin shouldn’t fall below the underlying asset value.

Tether is one popular stablecoin option, currently worth US$1. Akarat Phasura/Shutterstock

The most widely used stablecoins are Tether, TrueUSD and USD Coin, which bind their value to the US dollar. Tether experienced some short-term volatility, fluctuating between USD 0.989 and USD 0.95. TrueUSD has held stable, but USD Coin has had slight instability – though even its biggest drop still remained within 1.8% of the dollar. Compared with other cryptocurrencies, then, stablecoins have remained stable.

But there’s nothing technical keeping the price of stablecoins at a fixed value. If people lose confidence that the issuer has enough assets reserved to honour the value of all coins if redeemed, it could lead to significant price variations. The price could also rise if demand outstrips supply of a stablecoin.

The recent crash of Bitcoin and other cryptocurrencies, alongside inconsistent trading prices across exchanges, have influenced the perception that cryptocurrencies are unpredictable. The idea of a cryptocurrency with a fixed value has understandable appeal, especially among those wanting to make purchases with cryptocurrencies.

Cryptocurrency exchanges are also moving away from interacting with banking systems because of heightened regulatory interest and attention in cryptocurrency operations. In some notable cases, exchanges have even had their funds frozen by banks. This has led some popular cryptocurrency exchanges to no longer allow transactions between cryptocurrencies and real money. So, in order to buy on these exchanges, people need existing cryptocurrencies – making stablecoins a good option for starting out.

Will computer algorithms maintain stability?

Seigniorage-based stablecoins are the latest development. These use computer algorithms to control the stablecoin’s availability by buying and selling it automatically based on real-time prices, ideally keeping the coin’s price stable. If prices rise, coins from reserves would be made available to buy, which increases supply and reduces price. If the price falls, the algorithm can buy back coins (using other cryptocurrencies held in reserves) to reduce supply and increase the price.

But if supply increases too rapidly, the algorithm won’t have sufficient funds to buy back enough coins to stabilise the price. This could cause the value to plummet, especially if people lose confidence in the coin issuer. However, this can also happen to regular fiat currencies, not just stablecoins, as currencies are only valuable if others will accept it – otherwise, it significantly loses worth.

The future

Stablecoins might present a solution to short-term volatility, provided the currency backing its value remains stable in worth. But they won’t fix confidence losses, especially if the value of the stablecoin’s reserved assets is questioned. If the ability to redeem this currency is at risk, the stablecoin’s price will likely fall.

Seigniorage-based cryptocurrencies may handle limited volatility if they have enough reserves to control supply with algorithmic buying and selling. But this still requires people to willingly hold or accept the coin. Flash price crashes that occur when lots of a cryptocurrency is sold in a short time are not unheard of, showing the real potential for extreme volatility due to large transactions.

There’s also a significant premium for using stablecoins to purchase other cryptocurrencies. At time of writing, it cost almost USD 118 per unit more to buy one Bitcoin using Tether than US dollars, despite both supposedly having the same underlying value. If the market saw stablecoins as a solution to cryptocurrency volatility, the price would be the same as it is with cash.

While stablecoins might reduce the amount of risk buyers see in cryptocurrency, especially related to price instability, it’s unlikely they’ll actually be used more generally.

Using stablecoins for day-to-day transactions has many challenges, especially if the system can’t make more coins available if demand increases. Stablecoins also aren’t protected by the compensation schemes some cash bank accounts are, making it unlikely most people will replace their cash accounts.

Regular cryptocurrencies also offer potentially higher returns than stablecoins, which appeals to risk-takers. Major investment banks are also exploring ways to take advantage of cryptocurrencies’ price volatility, as this creates more opportunity for profit and will attract investors.

This isn’t to say stablecoins have no future. People living in countries with unstable local currencies could use stablecoins to digitally hold a more stable foreign currency. However, while stablecoins could be more secure than real currencies in some situations, the values will still fluctuate if people lose confidence in their worth.

Despite the volatile market, cryptocurrencies like Bitcoin remain popular with investors and ordinary people hoping to become Bitcoin millionaires. While stablecoins might seem a shrewd alternative, it’s unlikely people will trade their chance to earn millions for security.

Greig Paul, Lead Security Engineer, University of Strathclyde

Disclosure statement: Greig Paul has received funding from EPSRC on the Transactive Energy Supply Arrangements project (EP/R002312/1), exploring how blockchain-related technology could be used to facilitate peer-to-peer trading of energy.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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