All You Need to Know About Stablecoins

A stablecoin is a type of cryptocurrency where its value is linked to stable and real assets like fiat currencies to control the price volatility that is experienced by various cryptocurrencies such as Bitcoin, Ethereum, etc. Stablecoins are also referred to as digital assets that help to manage price volatility and they also track the values of different stable assets and fiat currencies such as the US dollar. Stablecoins come with various risks, and they have no physical existence; they are traded in various exchanges globally.

What are Stablecoins?

Stablecoins are created to function as a store of value within the DLT (Distributed Ledger Technology) ecosystem and it reduces the need for converting the cryptocurrencies to fiat currencies that involves higher fees and huge administrative tasks. People can buy bitcoin and other stablecoins through a cryptocurrency exchange. Even though cryptocurrencies are subjected to regulatory challenges in India, few cryptocurrency exchanges in India have been receiving investments from users who are interested in stablecoins.

Here is the list of stablecoins –

• Tether
• USD Coin
• Binance USD
• Dai
• TrueUSD
• HUSD

Importance of Stablecoins

Stablecoins are also called digital currencies that can be used to make payments globally. It has the potential to serve people who are unbanked and underbanked.  If the migrant workers are looking for a channel to send money home, or for businesses who would like to make payments to their suppliers overseas or for their employees, these stablecoins can be used as a potential substitute for replacing traditional currencies for facilitating faster transactions. If you are thinking about how to buy stablecoins, you can register through a crypto exchange and start buying them.

Working of Stablecoins

A stablecoin can be defined as a cryptocurrency that has a fixed value; this implies that the value of cryptocurrencies does not fluctuate immediately just like normal cryptocurrencies. Even though the stablecoin price is attached to the US dollar, there are other currencies that are fixed with different types of price indices.  Few central stablecoins like Tether, need a custodian for regulating the currency and to reserve a specific amount as collateral.

Why do you Need Stablecoins?

One of the major disadvantages of using cryptocurrency is, they are prone to high volatility prices; which is why investors use stablecoins that have stable prices and are powerful. As cryptocurrencies are faced with the high volatility of prices, even Bitcoin, the most popular cryptocurrency, is also influenced by price fluctuations. Because of this price fluctuation, businesses might not be using cryptocurrencies to pay their employee’s salaries, if the purchasing power goes on fluctuating every month. They do not want to take unnecessary currency risk if they are planning to transact with cryptocurrencies; this is one of the main reasons why digital currencies are not accepted in mainstream transactions.

Uses of Stablecoins

Stablecoins are used to switch within volatile cryptocurrency with a stablecoin; when it is used in trading it protects the value of the user’s holdings. For instance, if a user holds Bitcoin and forecasts the price to go down, they can immediately trade their Bitcoins with a suitable stablecoin to protect their Investments. These stablecoins permit the use of smart contracts that can be used over time. A smart contract can be defined as a self-executing contract developed on the blockchain network, which does not require any central authority or third-party approval.

Final Thoughts

The stablecoins main objective is to be used widely as a digital currency that can be used for daily transactions around the world. Even though stablecoins are highly useful to carry out different transactions, the risk about them should also be considered. Numerous large organizations are moving towards the cryptocurrency market; they can use cryptocurrencies to secure themselves using stablecoin. Hence we can say that stablecoins might be used in carrying out transactions with the different companies securely and quickly.