A stablecoin is one of thousands crypto assets traded on digital platforms. This digital currency is indeed attracting the attention of many parties, especially crypto asset traders.
One of the reasons is that crypto assets have a special design, which later becomes their advantage/uniqueness.
If you want to know more about what a stablecoin is, its types, and how it differs from other crypto assets, let’s see everything about cryptocurrencies in the review below.
What is stablecoins?
In general, Stablecoins is crypto assets tokens whose value is pegged at 1:1 (one to one) for a stable asset, such as gold, or a fiat currency, such as the US dollar. The essence of this coin is to maintain its pegged value, despite the volatile twists and turns that the cryptocurrency market faces.
Investopedia notes that stablecoins are a type of crypto assets created to offer stable prices and are backed by a reserve asset. It can be said that this cryptocurrency was created as a bridge between two types of assets, namely crcrypto assetsyptocurrencies that offer privacy, security, and fast transaction processing, as well as prices that tend to be stable like fiat money—a form of currency that is backed by the government of a country.
In short, this cryptocurrency has the goal of having a coin with a stable price. In a sense, the coin has the same value from the time you buy it until the time it is spent or traded. Given the relatively stable price, many investors buy this coin not for profit, but as a place to store their money in the crypto infrastructure and to use it when buying and selling other assets.
This coin was first created in 2014. At that time, this coin served to help facilitate transactions in the crypto system. The reason is, at that time banks were reluctant to give accounts to crypto companies for various reasons, ranging from the anonymity of crypto traders, the potential for money laundering, terrorist financing, and tax evasion.
Types of Stablecoins and Examples
Fiat-collateralized is stablecoins that are backed by fiat money. The currency that is often pledged as collateral here is the US dollar—considering that it is one of the most stable currencies. However, there are also a number of stablecoins that have used collateral from other currencies, for example the RupiahToken which has the same value as the rupiah.
Examples of fiat-collateralized are as follows.
- Tether (USDT): This is a pioneer stablecoin that was launched back in 2014 and is the most famous to date. The USDT value is guaranteed to be 1:1 with the US dollar. Now, USDT is one of the most popular stablecoins by market cap.
- RupiahToken (IDRT): This rupiah stablecoin is known to be built on the Ethereum blockchain. The value itself is guaranteed 1:1 with the original rupiah. Basically, IDRT is the digitization of rupiah by producing tokens in the amount of rupiah deposited by the user and sending it to the user’s Ethereum wallet.
- USD Coin (USDC): USD Coin is a stablecoin that is jointly managed by two crypto assets companies, namely Circle and Coinbase. The coin, which was launched in 2018, has the same value as USDT, which is guaranteed to be 1:1 comparable to the US dollar. USDC becomes the second largest stablecoin by market cap.
Commodity-collateralized is stablecoins that are backed by commodity assets such as gold in order to ensure price stability. The value is guaranteed 1:1.
Some examples are as follows.
- PAX Gold (PAXG): Is a digital asset issued by Paxos. Each PAXG token is guaranteed by one troy ounce or approximately 31.1 grams of gold bullion that has been accredited by the LBMA or the London Bullion Market Association. PAXG, by its users, can also be exchanged for physical gold which is pledged and stored by the Paxos Trust Company in New York.
- Tether Gold (XAUT): Tether, one of the largest US dollar stablecoin issuers, has also released a gold-backed stablecoin. The stablecoin is called XAUT—with each XAUT backed by a troy ounce of London Good Delivery gold bullion. The Tether gold reserves are stored in a safe in Switzerland and investors can withdraw the gold in physical form or redeem it with cash.
Crypto-collateralized is stablecoins that are backed by other crypto assets. An example is Dai, a crypto asset built on the Ethereum blockchain that is programmed to have the same value as the US dollar.
Dai, with its stable value, is also often used for trading crypto assets or as an investment instrument. The Dai currently circulating in the market is produced by MakerDAO—a decentralized finance application.
Meanwhile, several choices of assets that can be pledged to obtain Dai are ETH, USDC, PAX, YFI, and so on. In addition, you can also buy Dai in a number of crypto asset trading applications as well as in DEX applications, such as Uniswap or Sushiswap.
Lastly is non-collateralized or stablecoins without collateral (algorithmic). This one coin does not involve the use of any reserve assets. The reason is that stability comes from working mechanisms like a central bank.
For example, the base coin crypto assets uses a consensus mechanism to determine whether it should increase or decrease the supply of tokens based on need. This type of stablecoin is known to use the Seigniorage Shares system. There are two types of non-collateralized stablecoins, namely Carbon and Base.
The Difference Between Stablecoins and Other Cryptos
As is known, basically, crypto assets are characterized by erratic or wild price changes and extreme volatility. However, it is inversely proportional to stablecoins. This is what makes Stablecoin different from other crypto assets.
The high volatility of crypto assets itself occurs because blockchain technology is still relatively new and the crypto asset market in general is still relatively small. To minimize volatility, stablecoins as assets whose prices are pegged to a more stable currency can provide certainty, both to sellers and to buyers. This is because the price of coins whose movements are more controlled and can be projected in the near future.
In addition, Stablecoin also promises a stable price. The reason is, this coin allows its owner to transfer assets cheaply and quickly around the world like other crypto assets, but with a more stable value.