The main conclusions:
Stablecoins are cryptocurrencies whose value is tied to stable assets (fiat currencies, gold), which reduces their volatility. They differ in stable value thanks to the provision of assets.
Examples of stablecoins: USDT, USDC (fiat-backed), DAI (crypto-backed), AMPL (algorithmic).
Stablecoins are used to protect against market fluctuations, for international transfers in DeFi ecosystems.
In the future, the regulation of stablecoins, their integration into the traditional financial system and increased competition with central bank digital currencies (CBDC) are expected.
How did stablecoins appear and how do they work?
Stablecoins appeared as a response to the high volatility of traditional cryptocurrencies such as Bitcoin or Ethereum. The idea was to create a cryptocurrency with a more stable price that could be used for everyday transactions. The first stablecoin, Tether (USDT), was launched in 2014 and became the basis for the development of this category.
Stablecoins work by pegging value to a stable asset, such as the US dollar or gold. There are different models of provision:
Fiat-backed stablecoins (USDT) are backed by real money in bank accounts or other forms of assets.
Commodity-backed (PAXG) are tied to tangible assets such as precious metals, oil or real estate.
Crypto-backed stablecoins (DAI) are backed by other cryptocurrencies.
Algorithmic stablecoins (AMPL) are not backed by assets, but are managed through special algorithms to stabilize the value.
Examples of stablecoins
There are several types of stablecoins, each of which has its own security features: its value is tied to fiat currencies or physical assets, depends on cryptocurrencies or is calculated by algorithms. Types of security determine their market stability and control mechanisms.
Fiat-backed stablecoins:
Tether (USDT): Backed by US dollars, widely used in launch pools in cryptocurrency markets.
USD Coin (USDC): Also backed by US dollars, popular in DeFi and for launch pool transactions.
TrueUSD (TUSD): Backed by US dollars with regular reserve audits.
Commodity-backed stablecoins:
Tether Gold (XAUt): Their value is calculated according to the value of gold.
Paxos Gold (PAXG): Backed by gold held in professional vaults.
Crypto-backed stablecoins:
DAI: Backed by Ethereum and other cryptocurrencies via smart contracts, maintains market stability through liquidations.
sUSD: Stablecoin on the Synthetix platform, backed by Ethereum.
Algorithmic stablecoins:
Ampleforth (AMPL): An algorithmic stablecoin that varies the number of coins in circulation for price stability.
TerraUSD (UST): An algorithmic stablecoin that regulates the number of coins through the LUNA mechanism and is used in launch pools.
Why are stablecoins needed?
Stablecoins offer a high level of transparency and accessibility. Let's consider the main reasons for using such assets:
Protection against volatility. They allow you to avoid large losses, ensuring price stability.
Security of calculations. Thanks to their stability, they can be used for payments and transfers without the risk of losing a significant part of the value.
Convenience for international transfers. Stablecoins allow transactions around the world quickly and with low fees, without the need to convert currency. For example, in 2022, a large transaction between the US and China worth over USD 500 million was made through USDT.
Application in DeFi. Stablecoins are the basis for many decentralized financial platforms, where they are used for loans, deposits and trading.
What is the difference between stablecoins and altcoins?
In the world of cryptocurrencies, there are many tokens, each of which has its own characteristics and purpose. The two main types of cryptocurrencies are stablecoins and altcoins. Although both belong to the same ecosystem, they have significant differences. Let's consider the main ones:
Volatility:
Stablecoins have a stable price tied to an asset (such as the US dollar), which makes them less sensitive to market fluctuations.
Altcoins (all cryptocurrencies except Bitcoin) have high volatility, which means significant fluctuations in value.
Appointment:
Stablecoins are commonly used for settlement, storage of value, and integration into DeFi platforms.
Altcoins are often used for crypto-investments, speculation or implementation of innovative blockchain technologies through smart contracts.
Software:
Stablecoins can be backed by real assets (when tied to fiat currencies) or algorithms to maintain value stability.
Altcoins are subject to market supply and demand.
Examples:
Stablecoins: Tether (USDT), USD Coin (USDC), DAI.
Altcoins: Ethereum (ETH), Binance Coin (BNB), Cardano (ADA).
Using:
Stablecoins are ideal for users who want to avoid high volatility and ensure the financial stability of their assets.
Altcoins attract investors and traders who are willing to take risks for potentially high returns due to price fluctuations.
How are stablecoins regulated?
Control of stablecoins depends on their type and security mechanism. There are several ways to control and maintain the stability of stablecoins:
Centralized control (fiat-backed stablecoins). Control is exercised through centralized companies that publish reserve reports and comply with financial regulations subject to regulators (such as the SEC).
Decentralized control (crypto-backed). Stablecoins like DAI are backed by cryptocurrencies and controlled via smart contracts to maintain price stability without a centralized authority.
Algorithmic control. Ampliford (AMPL) and similar stablecoins maintain stability through algorithms that change the number of coins in circulation based on market price, without physical collateral.
Regulation and transparency. Centralized stablecoins publish audit reports, and decentralized assets through open smart contracts that allow their reserves to be audited for transparency. For example, the EU cryptocurrency market has a new regulation - MiCA (Markets in Crypto-Assets) - which will come into force in 2024. It sets requirements for stablecoin issuers in terms of transparency, reserves, and stability, including the publication of reports and compliance with security standards. The goal is to protect consumers, prevent manipulation and ensure the stability of the crypto market in Europe.
How to get and store stablecoins?
For the most part, stablecoins are created by companies or platforms that issue them. The creation process may depend on the type of stablecoin.
For crypto-backed stablecoins such as DAI, users need to provide collateral in the form of cryptocurrency (usually Ethereum or other altcoins) through smart contracts. After that, stablecoins are generated in exchange for the collateral provided. Centralized fiat-backed stablecoins like USDT or USDC are created by companies that hold levels of fiat reserves to ensure a stable value.
Stablecoins are stored in cryptocurrency wallets that can be hot or cold:
Hot wallets (such as Trust Wallet or MetaMask) provide quick access to your coins for transactions. They are convenient for daily transactions, but less secure compared to cold wallets.
Cold wallets (such as Ledger or Trezor) store cryptocurrency offline, which provides a high level of security, in particular for long-term storage of stablecoins without the risk of hacker attacks.
It is always important to choose reliable storage methods to ensure security and access to cryptocurrency.
How to buy stablecoins on Binance?
Buying stablecoins on cryptocurrency exchanges like Binance is a fairly simple process. To buy such digital assets, you need to take several steps:
Register on Binance. The first step is to create an account on the Binance cryptocurrency exchange. After registration, verification is required to increase security and access more features.
Replenishment of the balance. To buy stablecoins, you need to top up your balance on the exchange. Deposit can be made via Fiat Trade in the Binance app or P2P transfer.
Choosing a stablecoin. Go to the "Trading" section on Binance and select the desired pair to buy, for example, USDT/UAH (Tether to the hryvnia) or USDC/USD (USD Coin to the US dollar).
Buying stablecoins. Enter the purchase amount and confirm the transaction. After that, the stablecoins will appear in your balance on the exchange and you can use them for trading operations or transfer them to your wallet.
What does the future hold for stablecoins?
We have already established that stablecoins are ideal for those looking for safety and stability, and have significant potential in the world's financial systems for safe investments. Let's look at the main aspects of the integration of stablecoins into the global economy, which can be expected in the future:
Expansion of regulation. As stablecoins grow in popularity, governments will increase regulation, introducing more requirements for reserve transparency and security.
Integration into the traditional financial system. Banks and large corporations will start using stablecoins for international transfers and quick settlements, which will reduce transaction costs and improve efficiency.
Competition with CBDC. Central Bank Digital Currencies (CBDCs) can compete with stablecoins by providing greater stability and control from governments.
Growth in DeFi. Stablecoins will remain the basis for decentralized financial platforms, facilitating the development of financial transactions without intermediaries.
The future of stablecoins looks promising, with expected expansion of regulation, integration into the traditional financial system and growth in the DeFi sector. As of 2023, Tether (USDT) reserves exceeded 80 billion US dollars, confirming its position as the most liquid stablecoin and one of the main instruments in the cryptocurrency world.
Visnovok
Stablecoins provide stable value and reduce volatility risks compared to traditional cryptocurrencies. They are convenient to use for payments, international transfers and in decentralized financial systems. In the future, their integration into the global economy will grow, although competition with central bank digital currencies and increased regulation may create new challenges.
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