Stablecoins. Can cryptocurrency replace the dollar?

Cryptocurrency technology is rapidly developing and improving itself. Let’s break down what stabelcoins are and why they can be a substitute for the dollar.

Stablecoin is a type of cryptocurrency, which depends on the asset price of external factors (fiat currency, precious metals, fossils, etc.). Today we will talk about these coins, their variety, technology use. And also if and when cryptocurrency can replace the dollar.

Everyone knows that at the moment of cryptocurrency founding, it was implied that it could not be controlled by any banking system and the rate of the coin would not depend on any assets. But in practice, the situation turned out to be the opposite, it was clear that it is impossible to completely detach cryptocurrency from fiat. Bitcoin and all altcoins are somewhat dependent on the dollar and euro. But it’s not just the dollar and the euro that affects the rate of a coin, there are many reasons that move the price of a token.

For this reason, cryptocurrency is very volatile. The price of the asset can change many times, especially it affects coins that have a small capitalization. But there is a benefit in this as well. Cryptocurrency is great for short-term earnings. You can easily make money on the rise or fall of a coin.

High volatility and instability influenced the creation of the first stack. Cryptocurrency had to have a stable asset for which it was possible to make fixed purchases. So in 2015 Tether (USDT) was created, it laid the foundation and set the example. Of course sometimes there were small glitches when USDT was 1.06:1 or 0.94:1, but in any case the situation returned 1:1.

Principles and Types of Stablecoins

We know that stabbles work the same way as fiat money. Fiat can be used to buy groceries, appliances, real estate, etc. It is easy to buy (exchange) cryptocurrency for steibles. With this you can find such pairs as BTC/USDT, IOTA/BUSD, TRX/USDC and many others. Let’s analyze the pair BTC/USDT, here we buy BTC for USDT Stablecoin.

It’s worth remembering that the stabel is directly dependent on the fiat. If its price goes up, the price of the fiat also goes up.

Stables tied to a fiat

These stablles are the simplest. They are usually pegged to the dollar. And the dollar acts as collateral holding the rate of a digital coin.

As a rule, to get the stables with fiat, you need, for example, to put regular money into your account, where it will take the form of your desired stabelcoin.

The pluses of Stablecoin are that it has a high rate of stability and does not depend on fluctuations in the market. However, there are also disadvantages, for example, such stablcoins have a high level of centralization, which is not desirable in cryptocurrency.

This type includes 2 popular tokens – USDT and TUSD.

Stablecoins supported by other cryptocurrencies

Compared to Stablecoins, which are tied to fiat, there are huge advantages. Stablecoins tied to fiat have a low level of decentralization, and coins that are tied to cryptocurrency are almost completely decentralized.

But also the scheme of work of such token is more complicated. When creating such a token, you need to have a reserve capital exclusively in cryptocurrency, the price must be at least 2 times higher than the value of the token. For example, to create a token with a total value of $50, you need to provide a cryptocurrency reserve, its price must be at least $100.

Stablecoins without collateral

Such stabelcoins are the most complex and confusing. They do not depend on fiat or cryptocurrency. they work on the following principle: if the ratio of tokens 1:1 decreases and increases, the company issues or burns coins. Yes, it’s hard to understand, but if you think about it, it’s simple.

For example, if the rate of a coin becomes more than $1, the company decides to issue a certain number of new tokens in order to stabilize the ratio of 1:1. And if the rate of Stablecoin becomes less than $1, the developers issue a certain number of tokens, so that the ratio was 1:1.

Conclusion

Stablecoins are a necessary element of cryptocurrency. We can say that if cryptocurrency continues to develop in the same way, crypto money will be able to replace fiat. Already now we can notice that in private establishments, crypto ATMs or other ways to pay with cryptocurrency are more common.

it has a great future, you have to be prepared for change in advance. And most likely, change is just around the corner!

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