An Insight into Stablecoins and How they Work

A stablecoin is a type of cryptocurrency that is bridging the gap between the volatility of cryptocurrencies and the stability of fiat currencies. Stablecoins are pegged against a real-world asset, such as fiat currency, commodity, or other crypto assets.

Some of the popular stablecoins that are ruling the market include tether (USDT), Gemini (GUSD), and trueUSD (TUSD). A constant increase in the demand for such coins has been witnessed over the past few quarters and so is in the coin development services.

Working of stablecoins

Stablecoins maintain stability in the crypto market by having a consistent price. Usually, people do not see cryptocurrencies as a store-of-value or medium-of-exchange due to their volatility. Stablecoins, due to their price stability, have the potential to serve as a store of value and medium of exchange.

Following are the different types of stablecoins:

• Fiat-collateralized stablecoins: These types of stablecoins are backed by a fiat currency, which makes them fairly stable.

• Crypto-collateralized stablecoins: Crypto-collateralized stablecoins are backed by cryptocurrency. If you worry about price volatility, it can be guarded by over-collateralization. For a $1 worth stablecoin, $2 worth of cryptos can be set aside to minimize the effect of fluctuations, if any.

• Non-collateralized stablecoins: These types of stablecoins are not collateralized and work on the mechanism of smart contracts to monitor the supply and demand. It maintains an efficient circulation of coins in the market and also keeps a check on the pricing.

• Collateralized by commodity- These stablecoins are backed by tangible assets that have some real value in the market. Thus appreciation or depreciation of the price of assets such as gold, real-estate, precious metals, and others have a significant and direct impact on the value of stablecoin.

Popularity of stablecoins

People around the globe have gradually realized the benefits of stablecoins and have started implementing their real-life use-cases. Consumers have comprehended that uncertainty around asset conversion could be eliminated by the stablecoins and a predictable environment can be framed.

Various global companies are collaborating with the best stablecoin development company to be market-ready.

To name a few, JPMorgan Chase, which is one of the largest banks, is working on its plans to launch a stablecoin to accelerate the settlement process and provide a cohesive environment to their clients. IBM, in collaboration with Stellar, has launched a blockchain-based World Wire payment network wherein international banks can create their stablecoins backed by their fiat currency.

Additionally, Facebook has developed its fiat-pegged stablecoin that will simplify and expedite the payment process.

If you are also planning to launch your stablecoin backed by fiat or another stable asset, then we can help. We offer business-oriented and the best stablecoin development services to help you tap into the flourishing stablecoin market.

Schedule an obligation-free call with our subject matter experts to find out how we can help you in your venture.