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Stablecoins are a newer type of cryptocurrency that aims to reduce the price volatility that has plagued Bitcoin (BTC) and other digital currencies, like Ethereum (ETH). Overall, a stablecoin is a cryptocurrency whose value is intended to be maintained over time.
In theory this will help them become a stable way to trade money that people all over the world can use, trust, and rely on, that is a decentralised alternative to fiat currencies.
Because most countries have rules, regulations, and policies in place to maintain the value of their currencies, fiat currencies currently satisfy the requirements for a stable medium of exchange. Consider it in this light: a significant shift in the value of fiat currency would be one that is greater than two percent.
One example of a stablecoin is the USD Coin (USDC). It is backed entirely by U.S. dollar assets. The value of one USDC coin is directly proportional to the value of one US dollar, making USDC a tokenized representation of it.
USDC to USD Chart
Cryptocurrency, compared to fiat currency, is an entirely new game when it comes to volatility. The price of a coin or token can fluctuate wildly, sometimes by as much as ten percent in just a few short hours.
This can and does happen incredibly regularly. In the winter of 2017, the price of Bitcoin dropped below $6,000, then rose to nearly $20,000 before falling back below $7,000. This price swing occurred over the course of only three months.
This is where stablecoins come into play. Stablecoins’ primary objective is to maintain a constant price in order to encourage wider adoption of the complicated world of crypto. Stablecoins provide users of cryptocurrencies with a stable value without the centralized control of fiat currencies.
As a digital asset with a stable price, USDC can be utilized in a number of different ways:
- Investors who have exposure to multiple cryptocurrencies can reduce the overall volatility of their portfolios by purchasing a stablecoin such as USDC in order to hedge against the risk of common price fluctuations. Having USDC in a portfolio during times of significant market volatility can help to keep the value of the portfolio stable.
- Stablecoins like USDC can be used to price digital assets listed on cryptocurrency exchanges in values that are more intuitive as they align with fiat money costs.
- Price stability is achieved by pegging the supply of a stablecoin to a known and stable value. In the case of USDC, this enables the stablecoin to be used as a representation of equity ownership or fund investments.
- Transferring money internationally using USDC is possible. Plus, receivers are able to hold USDC without having to use a bank account or worry about the fluctuating value of the currency.
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Can you trust stablecoins after Tether (USDT) collapsed?
This can be hard to give a definitive answer to. As, in particular, USDT’s mix of reserve assets is not fully disclosed, and, most importantly, it is not immune to U.S. dollar price inflation.
Who is the founder of USDC?
Centre is in charge of managing USD Coin. It was established by the cryptocurrency exchange Coinbase (COIN) and Circle, a company that specializes in financial technology.
The goal of Centre is to alter the existing structure of the global financial system by establishing connections between all individuals, businesses, financial services, and currencies.