15. Stable Coins - a type of cryptocurrency

A stable coin is a type of cryptocurrency that relies on a more stable asset as a basis for its value. Since crypto currencies have always been associated with volatility and speculation in 2014, Tether came out with the first stable coin; a simple concept for creating a crypto asset that maintains a stable price. Nowadays, this concept is widely integrated in all crypto exchange platforms, and each stable coin is pegged to one of the following assets.

•   Fiat-backed: Coins that are collateralized 1:1 with a specific fiat currency:

•   Crypto backed: Coins backed with a specific cryptocurrency.

•   Algorithmic driven: Coins that rely on complex algorithms to match the price of the cryptocurrency to that of a specific fiat currency

•   Commodity- backed: Cryptocurrencies backed by precious commodities like gold, platinum, and real estate

The application use of these coins in both centralized and decentralized systems have increased their popularity and allowed them to become essential players in both types of platforms. In centralized systems, traditional fiat currencies are reliant on banks and the bureaucracy associated with them makes them highly inconvenient and slow to use. For this reason, stable coins are favored since this digital option has the backing of traditional money without the hassle of fiat currencies. They allow users to “cash out” their crypto currencies without having to go through traditional banking bureaucracy, so their assets are always ready to use while being safe from the daily fluctuations of the markets. 

•   Faster: Stable coins have a 24/7 availability since they do not rely on the banking 9-5 operating hours.

•   Cheaper: Unlike all credit card companies that impose high processing fees (2-5%) per transaction, stable coins bypass these costs

•   Cross-Border: In third world countries where inflation is a main issue not everyone is able to move their money to more stable fiat currencies. Stable coins gives the opportunity to anyone, anywhere in the world, to protect their assets with these currency or commodities backed digital coins.

•   Transparent: Transactions on the blockchain can be viewed from a blockchain explorer by anyone with internet access. Additionally, stable coins can offer full transparency into the process by which they are backed by agreeing to full audits.

•   Customizable: Stable coins are programmable and allow for custom features to be built in. This allows a tailored experience depending on customer needs, unlike “one size fits all” type of currency offered by traditional currencies.

•   Entry-point to decentralized exchanges: Since decentralized ecosystems do not intersect with traditional banking institutions and traditional currencies, it provides a stable “exit” for users who no longer want to hold their asset in traditional crypto currencies. This allows decentralized platforms to have the safety or stability associated with centralized platforms.

They hold all the benefits of stability in a highly volatile industry without the bureaucratic ties that come with traditional banking systems and traditional currencies. They have continued to thrive and outpace the rest of the market as volatility continues to reign in the crypto industry. The market capitalization is nearing the $200 as of April 2022 up 112% from $85 billion from the previous year. Additionally, since 2019 the economic, political, and social were a catalyst for the global need for stable digital assets resulting in a striking 495% growth between Oct 2020 and Oct 2021. While the largest stablecoin, by market valuation, tether (USDT) swelled by 3% during the last 30 days to $82 billion, terrausd (UST) has increased by 15.4% to $16.7 billion.

They are embedded in the nearly $200B worth crypto market and share the market with the current 200 stablecoins in circulation. They are key contributors in overcoming the public perception that crypto is insecure investment and overall skepticism around the long-term viability of digital assets.

Due to sever political instability in key geo-political countries and unexpected consequences of a long-term pandemic, even secure assets and currencies have experiences high than usual volatility and inflation. Although the pegged assets linked to the stablecoins are protected from the speculation and volatility of crypto currency markets, they still must be thoroughly assessed to determine the reliability and viability in their claim of being stable.  

© Xatoxi LTD 2023, All Rights Reserved.