🤔 What stablecoins are? Why are they so important to crypto?
When you’ve received a good profit, you want to fix it. Well, it means to withdraw part of the money from the coins somewhere, where they will lie stable and do not move. That’s where stablecoins help us.
You have to admit, it’s hard to imagine this marketplace without stablecoins, but… what kind of coins are they? A lot of people use them, but they don’t even know how they work. Some don’t even know what they are. Let’s see what it is, okay?
Fiat-backed stablecoins.
These stablecoins are the most popular. Their essence is that they are centralized. If you, our friend, favour decentralization, then for you, it’s a minus. How do these
stablecoins work? Let’s consider USDT — the most popular stablecoin from Tether, for example. It has more liquidity in the market; at the moment, there are more than $40billion of these tokens. Like all fiat-backed stablecoins, they are audited by centralized regulators. For example, USDT is often attacked by the
SEC (Securities Commission). Well, you understand, right? If you have printed $40billion? Then somebody will knock on your door and ask you to show their backing with tangible assets. So during the last audit of USDT, it turned out that it is backed not only by dollars but also by US Treasury securities and a little more crypto.
Long story short, the guys somehow fought off the regulators this time. By the way, write down an interesting fact: the crypto market starts to grow a little when Tether is pressed. Whales, large investors fear losing all their USDT, transfer their millions to Bitcoin and other coins. Now you understand how big this player is on the market.
Let’s summarize!
- Fiat-backed stablecoins must report to auditors that they have assets
for this amount. — You will have to
trust a third party with whom these assets are stored. This is centralization.
Here is a list of the most famous such stables: USDT, USDC, BUSD, TUSD.
Crypto-collateralized.
The crypto universe considered its duty to correct the misunderstanding with the presence of only centralized stablecoins, and successfully coped with this. Therefore, crypto- collateralized stablecoins were created. How? It’s simple, look: MakerDAO is the first who launched something like this. MakerDAO users now are able to borrow secured decentralized loans. The user needs to enter into this protocol. For example, a user’s ETH (although other cryptocurrencies are also possible) is 150% of the amount the user will receive as a loan. The loan is issued in DAI stablecoin, it is “printed” specifically for the borrower.
Thus, there are stablecoins over-collateralized with crypto and with the ability to take credit (Why do we need to take out such loans and what types are they? Okay, we will write about this too, be sure)
Let’s summarize!
- Every stablecoin that is backed by cryptocurrency is over-collateralized, which makes it “stronger”.
- You also don’t have to sit for long nights frantically reflecting on the fact that some third party has assets.
- There can be no check-ins from centralized regulators. Cool, huh? Yes, bro, this is interesting. List of the most popular crypto-backed stablecoins: Dai, sUSD, USDP.
Algorithmic stablecoins.
Now we will tell you to forget about what we wrote above. Actually, don’t forget, remember, and even re-read. But now we will tell you about different kinds of stablecoins.
Algorithmic stablecoins are often not equated to the value of a dollar or other fiat currency, mind you. The bottom line is that they are not backed by anything. The stability of these stables ensures seigniorage. Seigniorage is income that is generated by issuing currency. Stop, what? Hmm, let’s explain it in a more straightforward way: when the price and demand rise, new stablecoins are released that normalize the value. If demand falls, coins are buying up to reduce the volume of the asset in circulation, again to normalize the price. So the price remains stable, because it is controlled by supply and demand.
Let’s summarize!
- The most decentralized thing. — Possibility of scaling. — Everything is controlled by code and algorithms. Crypto anarchists finally get a kick out of it. List of the most popular algorithmic stablecoins: Rai, Float, Fei, Ampl.
The formula is simple: earn money on crypto — withdraw it into stablecoins.
Write in chat about what you’d like to read more about. And don’t forget to fix your profits, please.
