You may be familiar with the term stablecoin. But because it is a relatively new type of cryptocurrency, you may not be familiar with what it is.
So what is it? Why is there so much fuss surrounding these coins and what are the stablecoins you should know about?
Let’s dig in!
Stablecoins: What On Earth are They?
In its most simple terms, a stablecoin is a cryptocurrency that is pegged to a tangible, or stable, asset. Examples of a stable asset include gold or the US dollar. The idea of backing a cryptocurrency with a tangible asset is to reduce the price volatility associated with standard cryptocurrency. In doing so, digital coins become far more practical for everyday use, and it may encourage global adoption.
Cryptocurrency Volatility
Standard cryptocurrencies such as Bitcoin have high volatility. On any given day, the value can suddenly increase or decrease (often by significant percentages) for no apparent reason other than market hearsay or fear mongering. This is because the value of Bitcoin, and other cryptocurrencies, depends on what value is given to it by investors. It does not depend on a physical asset to determine its worth. Because of this, Bitcoin and most cryptocurrencies are inconvenient for daily transactions.
Imagine this: You are a vendor, and you sell a dress in exchange for 300 RPX. At the time of the transaction, 300 RPX could be worth $35 USD. However, the next day that same amount of RPX could now equal $23 USD. You wouldn’t be a very happy vendor. Further, you would be consistently aware of the ever-changing value to which your wares are a victim too.
Price changes like this are shocking for merchants and consumers alike. But the adoption of stablecoins may be a catalyst to the decentralized cryptocurrency system working mainstream.
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Stablecoins Offer an Optimal Currency
The goal is to create an optimal currency.
According to Forbes, “an optimal cryptocurrency should have the following four traits: price stability, scalability, privacy, and decentralization.”
Price stability is the key trait, and this is what a stablecoin aims to achieve. As Forbes explains further, “Short-term stability is important for transactions and long-term stability is important for holding.”
So let’s look at some examples of stablecoin projects aiming to create the optimal cryptocurrency.
Tether: The Pioneer
You can’t talk about stablecoins without giving a nod to the pioneer. Tether is notable because it’s widely considered the first stablecoin.
1-to-1 USD
Tether claims it is 100% backed by fiat currency held in a reserve bank account. It is said to be backed 1-for-1 to the US dollar, with 1 Tether being equal to $1 USD. It will remain fully backed once all Tethers in circulation are less than or equal to all the fiat held in the reserve.
Most Established but Controversial
As it is the pioneering stablecoin, Tether is the most established and is well-integrated. However, Tether has faced controversy in the past, as its claims have not been legitimately proven. The company’s terms and conditions state that “Tether reserves the right to refuse to issue or redeem Tether Tokens.”
Some fear this statement gives the company credence to not redeem the currency at the 1-to-1 value it claims.
uBUCK: The All-in-One Convenience
uBUCK is a digital currency wallet that has fiat capabilities.
According to its website, uBUCK enables you to “pay people with uBUCK cash with lightning speed, make purchases online at approved merchants or withdraw cash at the ATM.”
With the ability to buy uBUCK Cash using either Bitcoin or Ethereum cryptocurrencies, a user is effectively “storing” their cryptocurrency in a stablecoin that is tied to the US dollar.
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How Does It Work?
It works like this: A user buys a prepaid uBUCK voucher from the uBUCK mobile application. As stated, you can use BTC or ETH to buy, but regular fiat credit and debit purchases are also accepted.
Users then load the uBUCK Debit MasterCard (linked to the uBUCK wallet) with their voucher credit, effectively converting the uBUCK Cash into dollars by doing so. This then means ATM withdrawals and regular shopping around the globe is possible with the uBUCK MasterCard.
Wallets
uBUCK comes with four secure wallets. These are the uBUCK Cash Wallet, a Bitcoin wallet, Ethereum wallet, and the USD Debit card. By having a multi-functional wallet, a user can manage their digital and fiat currency in one convenient place. Then, as stated, by using the uBUCK app, the wallet enables users to store, convert, and spend their fiat and cryptocurrencies.
Free Money Transfer
Another interesting feature of this platform is that users can send uBUCK vouchers to other recipients anywhere around the world for free. Essentially, the service allows free money transfers in only a few minutes.
MakerDao: Complex but Transparent
Maker is a decentralized autonomous organization, and its stablecoin is called Dai. Pegged against the US dollar, Dai operates on the Ethereum blockchain and, as such, it is transparent.
Asset Collateral
Each Dai is worth $1 USD, and the website states that “Every Dai is backed in excess by collateral at all times, so you never have to worry about its value moving up or down.“
Further:
“Every Dai is backed by another asset of value. Our collateral portfolio is diversified, allowing multiple assets to guarantee the value of each Dai.”
Ethereum Blockchain
The system is said to be quite complex. To receive Dai, you have to first send your ETH tokens to the Maker platform where they will be “locked up.” Then using the Ethereum blockchain, Maker maintains stability by an autonomous system of smart contracts.
According to its website, Dai offers freedom from volatility:
“Dai stands to transform the financial industry by creating a stable and decentralized currency that will allow businesses to realize the future of money.”
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The Takeaway
Stablecoins can bring stability to the crypto world and offer real potential for global adoption. The key is to create the optimal cryptocurrency inclusive of price stability, decentralization, scalability, and privacy.
The technology is still relatively young and will continually evolve, but it is clear that demand is there. People are looking for the balance between a decentralized payment network and stable value.
Everybody wants to feel secure in their transactions and know that they won’t lose value on their assets for no reason other than market hype.
We’ve mentioned only a few stablecoins here. There are more out there! Do you have any favorites? Do believe the technology will work and bring us towards that optimal currency?
Let us know below!
Featured image: DepositPhotos © zim90
