Stablecoins: Top 4 players in the market in 2022
The high degree of volatility connected with trading in crypto has contributed to an increased level of uncertainty about blockchain technology and cryptocurrencies in general. Trading in crypto assets does come with huge risks, but it also comes with significant benefits. Stablecoins, on the other hand, provide a relatively risk-free alternative in this world of volatile trade.
Combining the predictability of conventional assets with the adaptability of digital assets has proved to be an extremely well-received one. Decentralized finance (Defi) is an emerging category of financial goods. It is possible to do transactions with no involvement of a third party like a bank or a broker. Stablecoins have emerged as an essential element of this category. They have become among the most popular means to store and exchange value in the cryptocurrency ecosystem, which has resulted in billions of dollars worth of value being transferred into them.
Let’s take a more in-depth look at these coins to understand them better.
What are Stablecoins?
A digital currency that is “anchored” to a “stable” reserve asset is referred to as a “stablecoin.” The value of a stablecoin is often tied to that of a particular actual currency, most frequently the U. S. Dollar or gold. A stablecoin is a sort of cryptocurrency that is meant to keep its value constant over time. Typically, one unit of cryptocurrency equals one unit of actual cash. Stablecoins, as opposed to highly volatile cryptocurrencies such as Bitcoin, are intended to lessen volatility.
Compared to volatile cryptocurrencies, the reduced volatility results in a kind of digital money suited to everything from day-to-day business to conducting transactions across exchanges.
How does it all work?
Stablecoins are a form of crypto whose value is pegged to that of another asset. This other asset is often a fiat currency, such as the U.S. dollar, gold, or even the euro; however, other assets are feasible. This specific kind of crypto coin keeps track of the underlying asset, ensuring that its value will not fluctuate, at least not concerning the currency with which it is connected. To put it differently, it is the same as if the underlying asset had become electronic, such as a digital dollar.
This structure is fundamentally opposed to the great majority of cryptocurrencies, such as Bitcoin and Ethereum, which are not backed by anything. Contrary to stablecoins, these other cryptocurrencies are subject to significant price swings since speculators drive both their up and down to make a profit by trading in them.
Stablecoins are kept stable or supported by the following fundamental techniques:
- Fait Backed Stablecoin
- Cryptocurrency Backed Stablecoins
- Commodity-backed stablecoins
- Algorithmic or Hybrid stablecoins
What is the purpose of Stablecoins?
A stablecoin is a sort of crypto designed to keep its value constant over time. Its primary purpose is to reduce price volatility, making them more valuable as a store of value and medium of exchange.
As the name implies, these commodity-backed stablecoins are tethered to the value of commodities such as precious metals, industrial metals, oil, or real estate. These assist commodity investors by allowing them to invest in gold without worrying about finding and keeping it. For example, the stablecoin issuer sets up a reserve at a financial institution that owns the underlying asset. A stablecoin may maintain $100 million in reserve and create 100 million $1 coins. The reserve may be retrieved if a stablecoin owner wishes to cash out the coin.
They are also used for monetary transfers between crypto firms and to hold on to digital currencies without the same risk of volatility. Lastly, they are utilized to purchase goods and services using cryptocurrencies. These coins are simple to transfer, have a minimal fee, and may be sent anywhere globally on the international market.
Popular Stablecoins on the market:
Tether (USDT) was the first stablecoin ever created, and it is now the most actively traded and liquid stablecoin on the cryptocurrency market. Tether has a market capitalization of over $80 billion, making it the biggest stablecoin by market cap and the third-largest cryptocurrency overall, after Bitcoin (BTC) and Ethereum’s Ether (ETH).
Brock Pierce, Craig Sellars, and Reeve Collins were the founders of Tether in 2014, and the cryptocurrency was first known as Realcoin. This stablecoin will strive to maintain a value identical to the United States dollar. Tether claims to be fully backed by cash, currency equivalents, and commercial paper reserves.
USD Coin (USDC) is a notable stable coin created by a domain named Centre, a collaboration between Circle and Coinbase. This stablecoin is linked to U.S. dollar-denominated assets.USDC, launched in September 2018, currently has a market valuation of approximately $50 billion, making it the second-largest stablecoin.
This stable coin may be used for several reasons in the cryptocurrency market, but it is most often connected with decentralized financial techniques. USDC is utilized by applications, enterprises, and blockchain networks. Many crypto exchanges, online wallets, protocols, and other businesses accept USDC for worldwide payments.
Binance USD (BUSD) is a well-known stable currency created in 2019 and has a market value of more than $1 billion. Binance is among the most prominent cryptocurrency exchanges, and Paxos, a regulated blockchain infrastructure platform, collaborated to create BUSD. It has been authorized by the New York State Department of Financial Services. Users may buy BUSD one for one with U.S. dollars.
Binance USD aims to speed up the transfer of digital assets across the financial network. BUSD is the Binance exchange’s native stablecoin, allowing users to effortlessly enter and exit crypto deals without having to transfer funds from their online wallet.
Dai (DAI) is a stablecoin founded in 2017, driven by the Ethereum-based tech MakerDAO. Dai, like other stablecoins, is tied to the U.S. dollar, but unlike many other stablecoins, Dai may also be collateralized or backed up by other cryptos like Ether, USD Coin (USDC), etc. Dai’s price stability as a stablecoin is probably enhanced by the multi-collateral option and transparency through smart contracts that he employs to acquire adequate collateral.
In the MakerDao community, users may vote for additional collateral alternatives. Dai’s market worth exceeds $6 billion, making it one of the most valuable stablecoins accessible to consumers.
Conclusion:
Stablecoins fill a gap in the crypto market by providing some stability that other cryptocurrencies lack, rendering them useless as real money. These are the assets with the highest degree of dependability and the lowest degree of volatility. These are an excellent choice for earning passive income, and blockchain technology may help speed up payments and transactions made from peer to peer. This article explains stablecoins and some of the best players of these coin
