5 key facts about Stablecoins
1. The difference between stablecoins and other cryptocurrencies
The price of most cryptocurrencies is determined by supply and demand in the marketplace. It fluctuates quite often and sometimes very drastically. A stablecoin, on the other hand, is a cryptocurrency with a stable price. We liked Eliand Glover simple definition: “A stablecoin will relatively have the same buying power tomorrow than it has today”
2. How do stablecoins achieve their stability
As Haseeb Qureshi explained, this price stability -not common in the crypto space- is usually achieved by giving the coin a fixed position against another stable asset, for example the USD or another fiat currency, gold, real estate assets, another cryptocurrency or a basket of currencies. So far, all stablecoins imply a peg or a link to another asset.
3. Who needs stablecoins
The crypto market is very volatile and there is a high correlation between the price of all major cryptocurrencies. Even though today this market is mainly populated by traders who profit from this; there is also a large number of users who could actually benefit from value stability:
- Anyone who wants to save some money as they would do in USD, for example, but away from the traditional banking system and away from the negative characteristics of their national economy.
- Investors who want to “play it safe” for a period of time while a new investment opportunity comes up or during an unfavorable volatility crisis.
- Exchanges who want to transfer or store money within the crypto space to scape the costs associated to fiat currencies.
- An ICO or ICO sponsor who needs to keep a stable value for the money they raised.
4. Why are stablecoins important for the future of cryptocurrency
It’s precisely the volatility and day-to-day price fluctuation what is keeping the masses away and scared of cryptocurrencies. Imagine if we can assure reluctant people that the value of their money will be stable and safe within the crypto space, so they can enjoy all the benefits from a decentralized and innovative financial system, without all the risks they’ve been hearing about in the news. Everyone can agree stability is important to encourage a wider adoption of cryptocurrencies.
5. What’s the next step for stablecoins?
Like everything in crypto, the current stablecoins’ offer is continuously changing and innovating, and that is a good thing. There is room for improvement and there are good ideas out there. The ideal stablecoin should also be:
- Smart: Not only a storing place, but also a tool of currency allocation for holders.
- Cheap: low-cost and easy to access.
- Transparent: it should have a trustworthy operational process with reputable third-party auditors involved.
- Liquid: it should be easy to buy and sell at any given moment and any given quantity, without this having any impact on the price.
Recommended reading: Bringing Stablecoins to the next level
*Written by: Eva — Globcoin CMO
