Understanding the Benefits and Applications of Stablecoins

Stablecoin is a form of cryptocurrency that focuses on reducing the price volatility of cryptocurrencies. The key term herein is “stable” that signifies that a stablecoin is backed by a specific real-world asset, such as fiat money, commodities, or other crypto assets, which stabilizes its price.

Let us explore some of the essential characteristics of stablecoins.

Main Characteristics of Stablecoin

• Price stability: Stablecoins offer price stability; theynot only reduce the volatility risk but also serve as a store of value.
• Transparent: Stablecoins have a transparent framework. The architecture of the coin is open for all and all the transactions are displayed in public accounts.
• Consensus-controlled supply: The decision of the total supply of stablecoin is either of the management or can be decided by the community itself.
• Privacy and scalability: The privacy of users is maintained; transactions between senders and receivers are held through a unique address, thus maintaining the anonymity of users.
• Boundary-less transactions: Stablecoins, just like any other crypto asset, can be transacted globally.

Stablecoins vs. Other Cryptocurrencies

Cryptocurrencies started their journey with Bitcoin in 2009 and stablecoins were introduced in 2018 to stabilize the price fluctuations.

Having discussed the attributes of stablecoins, let us comprehend some significant differences between stablecoins and other cryptocurrencies.

Firstly, the mechanism of stablecoins is such that they can correct the undervaluation and overvaluation of coin prices. On the other hand, other cryptocurrencies such as bitcoin do not fall under this criterion and majorly get affected by fluctuations and volatility.

Secondly, the volatility and price fluctuations in case of stablecoins are low. On the contrary, cryptocurrencies are highly volatile.

Last but not least, stablecoins are readily considered as a store of value because they are backed by some real-world assets. On the other hand, crypto assets are not backed by any real-world asset, thus they are not typically used for trading and not seen as a store of value.

Real-world Application of Stablecoins

• Protection from local currency crash

The economy of Venezuela faced hyperinflation and all the savings of the citizens were dried up and became worthless. The situation got out of control. Stablecoin is an ideal solution to local fiat currency crashes like Venezuela.

• Regular and standard currency

Stablecoins are now being used in day-to-day transactions. Payment and remittance through stablecoins have gradually increased over a year. Overseas payments have especially been improved. People are leveraging stablecoins to quickly and easily transfer funds globally.

• Simplifying payment mechanism

Stablecoin has simplified the peer-to-peer payment mechanism by making it more transparent and traceable. For instance, a company that is having global operations has to pay its employees in currencies other than their revenue generation currency. Due to this, a huge fee is often being paid to exchange the currency. On the other hand, stablecoins take only a few minutes to get transferred at no transaction expense.

• Enhances efficiency of crypto exchanges

There is a limit on crypto exchanges that provide support for purchasing fiat-backed crypto assets. It is due to strict regulations that crypto exchanges have to comply with while formulating crypto-fiat trading pairs. However, with the inclusion of fiat-backed stablecoins, the task of crypto exchanges has simplified and a significant increase in trading pairs has also been witnessed.

Conclusion

Individuals across the globe have realized the importance of stablecoins. Start-ups, SMEs, and large corporations are looking for new means to adopt stablecoins as their medium of exchange.

If you are planning to build your stablecoin, we can help. Our blockchain engineers have real-world experience in developing stablecoins and offering token development services. We provide business-oriented solutions to help you tap into the potential of the crypto market.

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