The next generation of global finance tool: StableCoin
Cryptocurrencies were born to perform two very different functions:
- A place to store value similar to gold;
- A means of value exchange such as the dollar and Japanese yen.
As you can see, the price of Bitcoin (BTC) (BTC), Ethereum (ETH) and many other cryptocurrencies are very volatile. The gold, silver, platinum and other assets that investors are using to store the value of their assets.
However, such volatility has made it difficult for cryptocurrencies to become a means to trade or exchange. The owner of the restaurant who sold you an omelette for $ 10 did not want the value of Bitcoin he received to be reduced to $ 9 by the time he closed the day.
A version of the cryptocurrency, called stablecoin, could be the next generation of digital money. Unlike Bitcoin, Ethereum and other altcoins, stablecoins are designed to substantially eliminate cryptocurrency-related volatility and instead provide a stable value.
Stablecoins are on their way to become a global currency, a currency issued and monitored by Blockchain technology.
So how to make this a reality? By pegging the value of stablecoins to the value of another currency, like US dollars or gold. This helps avoid the volatility we often see in other cryptocurrencies.
In short, stablecoins offer the same benefits as Bitcoin but with a stable price that makes it possible to become a medium of exchange for everyday goods and services.
The potential of stablecoins is many times larger than Bitcoin. In fact, the market for stablecoins is all currency in the world or about 90 trillion dollars.
Stablecoins have three basic types:
1. Guaranteed by cryptocurrency
Stablecoins are secured by a combination of other decentralized crypto assets.
The benefit of this method is that it is decentralized and not controlled by the government. These stablecoins can work well on public Blockchain networks, providing full transparency by recording each open transaction on a public ledger.
The downside is that any combination of crypto assets is still volatile and unstable.
2. Guaranteed by goods
These are stablecoins that have been secured by tangible assets/commodities, usually gold. The issuer holds several legal reserve assets at reputable financial institutions.
3. Guaranteed by legal money
These stablecoins are backed by a certain prevailing fiat currency. The issuer holds a certain amount of legal tender — most commonly in US dollars, euros and Japanese yen — at reputable financial institutions. Each stablecoin corresponds to a unit of an asset used to secure it.
Moreover, that stability is maintained through arbitrage opportunities. For example, if a stablecoin drops below the 1: 1 ratio, outside speculators can buy back some of these stablecoins at a reduced price — say 95 cents — and exchange them from the issuer for the value full is 1 dollar. The reverse is also true if a stablecoin is pegged to the legal currency that is trading above 1 USD.
By pegging prices to other real assets, stablecoins avoid frequent price fluctuations in the cryptocurrency market. In short, stablecoins are the key to unlocking the power of Blockchain technology and creating a decentralized global currency (without government).
A recent survey from Binance found that 96% of their customers are using stablecoins. That’s right, you didn’t hear it wrong, the acceptance rate is 96%!
Stablecoins will revolutionize global financial and payment channels. But the question you should ask is how can you make money from stablecoins if it doesn’t add value?
Our answer: Stablecoins were created to replace dollars, Japanese yen or euros — the world’s most popular payment instrument and a new way of trading for giants. giants worldwide. Think about it, is it enough for you to benefit? You will have global financial instruments, no borders, and relatively stable values.
In the future, will cryptocurrencies do more than just act as speculative assets? If so, then the key will be a digital currency designed to keep prices stable. At least, that’s what developers in the crypto market believe.
According to Garrick Hileman, director of the research department at crypto blockchain service provider, the number of stablecoins has risen sharply from a count of 10 fingers, to nearly 60 projects in just 18 months, and dozens more are expected to launch in the near future.
According to Hileman, the stablecoin craze is visible, the volatility of cryptocurrencies like Bitcoin and Ethereum “is about to face problems” when used on popular Blockchain applications such as payment services, loans, borrow or insurance. He said that this reflects, less volatile cryptocurrencies can be a “base layer” to scale the use of cryptocurrencies globally.
If the goal is to expand the user size, then it is important to understand the meaning of stablecoins. This term can be used to refer to many different types. Tether, the popular stablecoin that is said to have a value in USD equivalent value is stored in a bank account. This is a useful tool for traders to make a profit without having to return to fiat money. Tether has inspired many other versions of stablecoins.
According to Hileman, nearly 60% of the $ 350 million that venture capitalists poured into stablecoin projects in a non-bank-based approach, thus promising decentralization and better access. .
Critics suspect complex stablecoins could hold their money for long. The systems also raise complicated legal questions, especially when many projects rely on market manipulation to keep prices stable, Hileman said.
It is still very early, not only technologically but also legally. Trying to make too many predictions is unnecessary, especially at this stage.
Cryptocurrencies in general and stablecoins are still in the stage of neither newborn nor mature. There are still many backlog issues that need to be addressed in the crypto industry to be applicable in many different ways. And stablecoins are a viable option because they meet the price stabilization needs of investors. While the stablecoin problem is not inferior to other cryptocurrencies, the human brain is amazing, and it becomes even more wonderful when applied to technology. There will be workarounds, but perhaps not just one way, but many different ways, let’s wait and see how the stablecoin projects mature and help the world.
Published at Sat, 14 Dec 2019 02:43:53 +0000
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