How Stablecoins Bring Stability to the Cryptosphere

Altcoins | ICO News | ICOs | Reviews

 

Cryptocurrency has always been an extremely volatile marketplace to trade in. Price swings of 10 to 50% within a 24 hour period can occur a few times a week and almost daily for lower volume coins.

Although these fluctuations may be great for both traders and investors (depending if your long or short), the volatility makes it very difficult to use in the real world. It not only hinders its adoption, but its fundamental ability to be utilized as a reliable currency.

FREE CRYPTO COIN JUNKY HANDBOOK - 147 page guide covering Crypto Fundamentals, Beginners/Advanced Crypto Trading Strategies, Crypto Mining Techniques, ICO Investment strategies, and so much more.

CRYPTO TRADING STRATEGY GUIDES - Whether You're Day Trading, Swing Trading, Or Just Investing...Our Extensive Guides Will Get You To Where You Want To Be.

cryptocurrency-volatility

Volatility plays a very important role in mass adoption as consumers want to be able to make transactions without having to worry about the value fluctuating overnight. Who wants to worry about getting paid for a product or service to only have that currency lose its value by over 30% next week?

From a business standpoint, merchants don’t want to accept transactions in a currency that includes a ton of risk. A great example of this would be employee payments. No one wants to work for a wage where you perform the same task every week but your paycheck is constantly fluctuating?

THE COMPLETE IDIOTS GUIDE TO MARGIN TRADING ON BITMEX - Beginner Strategies for Generating Consistent Profits with Margin Trading on Bitmex

TOP 3 BITCOIN CASINO & SPORTSBETTING SITES OF 2018 - Looking to Have a Little Fun with Your Crypto? Check Out the Latest & Most Innovative Crypto Gaming & Sportsbetting Sites on the Web

You’ll be happy to know that there is one emerging class of cryptocurrencies that are designed to tackle this exact issue. These are known as stablecoins.

What Exactly Are Stablecoins?

stablecoins

Stablecoins are a type of cryptocurrency that presents itself as a price stable asset in an ever-fluctuating marketplace. It offers a medium of exchange, store of value, and unit of account.

Stable coins are universal and are not tied down to a central monetary authority. Its supply cannot be controlled and dictated under future influence.

There are different versions of the stablecoin however there are only 2 popular versions that are utilized the most. They are the IOU issuance model and cryptocurrency-collateralized model.

Let’s take a closer look at these two stablecoin models.

IOU Issuance Model

With this model, stablecoin holds a 1-to-1 ratio to an asset that resides within a bank account. As an example, a corporation could hold a physical asset like gold or silver in their bank, which could be tied to a particular stablecoin.

Each stablecoin, under this model, derives its stability from the fact that its value can be exchanged for a physical asset. A countries fiat currency or a particular metal like gold are generally the type of physical items that are tied to these types of coins.

One of the most popular stablecoins in existence today is Tether (USDT). The actual value of Tether is tied to the equivalent of one US dollar. To ensure the value of the Tether coin, it must be backed against a corresponding US dollar inside Tethers bank account.

This brings us to one limitation within the issuance model. It’s centralized, which means individuals must trust that the entity that holds the physical asset being represented by the stablecoin is held within the company’s account. As you can imagine, this requires a lot trust by owners of the coin.

Cryptocurrency-Collateralized Model

With this model, stablecoins are not backed by centralized assets; they are backed by digital assets, for example Bitcoin. The main advantage to this asset is that it doesn’t require blind trust from participants in order for it to work.

For example: the asset that backs the stablecoin can be held in a smart contract. This way the amount of assets held are transparent and independently verified within the smart contract.

The problem with this model is that it’s tied to a cryptocurrency which is volatile in nature and runs contrary to stablecoins entire purpose. As a result the method may involve “over collateralization” so that price fluctuations can be absorbed

As an example of this, a smart contract can be created in order to hold $400 worth of Bitcoin. This would serve as collateral for say $200 worth of stablecoins. Now if an unexpected event were to occur (massive swing in price- “Black Swan event”) this would negatively impact the stablecoins value. This will result in the destabilization of the issued coin.

Stability in an Unstable Environment

stability

All major cryptocurrency enthusiasts are looking towards a catalyst that will result in mass adoption. There are a ton of factors that can contribute to such an event. We can all agree that overcoming market volatility is imperative to facilitating mass adoption.

Perfecting the stablecoin in order to bring about mass adoption can be a difficult task, however there is still a number of promising stablecoin projects that aim to overthrow these issues and bring about a non-volatile cryptocurrency within the crypto ecosystem.

Most crypto traders utilize the Tether coin, however there is a blockchain project that goes by the name of Basis, that claims to provide a stable cryptocurrency that is backed by a large number of US venture capital companies. This will likely be the closest competitor to Tether in the near future.

[UPDATE: There is a new stable coin on the market by the name of “Reserve” that has been gaining a lot of support from many major investors. You can read more about the coin along with other stablecoin releases here.]

Leave a Comment

Latest Crypto News

Google Unbans Crypto Ads, Will Work With Regulated Firms

Google, the $828 billion search engine behemoth, has unbanned crypto-related ads, allowing regulated companies to utilize its platform to advertise their products. In March, Google executive Scott Spencer stated that cryptocurrency investments have potential to cause harm

Gemini-Receives-Bitlicense-Which-Allows-Business-to-Operate-in-new-york

Cryptocurrency Exchange Gemini Eyes UK Expansion

Gemini, the U.S. cryptocurrency exchange founded by bitcoin billionaires Cameron and Tyler Winklevoss, is rumored to be eyeing an expansion into the United Kingdom. Gemini Plots Transatlantic Expansion Citing two sources close to the process,

Ripple Donates $2 Million to University of Texas to Fund Blockchain Initiative Program

What Pushed Ripple up 100% in a Week

In a supernormal rally that almost lost ethereum its silver spot, ripple (XRP) gained about 100 percent in a week. The maximum difference in XRP’s market cap between the week’s lowest and highest level turned

Coinbase Now Has Its Own Political Action Committee

Coinbase Firmly Denies Accusation of Proprietary Trading

Cryptocurrency exchange operator Coinbase has denied that it engages in proprietary trading and that these activities account for a large percentage of the firm’s overall trading volume. Yesterday an investigation into cryptocurrency exchange policies and

Sign Up Below!
Airdroppin the Latest Crypto News, Trading Strategies, Tools, & Reviews



1
Bitcoin
Bitcoin
$6,378.60
-3.98%
2
Ethereum
Ethereum
$209.47
-11.01%
3
XRP
XRP
$0.4487
-14.30%
4
Bitcoin Cash
Bitcoin Cash
$428.89
-8.91%
7
Litecoin
Litecoin
$55.954
-4.77%
9
Cardano
Cardano
$0.076537
-10.71%
6
Stellar
Stellar
$0.2384
-10.34%
14
NEO
NEO
$17.338
-8.59%
5
EOS
EOS
$5.323
-7.61%
12
IOTA
IOTA
$0.5339
-6.85%

Crypto Guides & Tutorials

 Crypto Reviews

Subscribe to Our Social Media Daily Crypto Memes
Follow, Like, and Share Our Memes With The World


Pin It on Pinterest

Plus Free Crypto Trading Guides, Tutorials, Latest Crypto News,
and Altcoin Reviews. (Coming Soon: Pro Trading Signals)
SIGNUP FOR YOUR FREE
CRYPTO COIN JUNKY
HANDBOOK
DOWNLOAD NOW
We hate spam as much as you do. Unsubscribe anytime.
Plus Free Crypto Trading Guides, Tutorials,
Latest Crypto News, and Altcoin Reviews
(Coming Soon: Pro Trading Signals)
DOWNLOAD NOW
We hate spam as much as you do. Unsubscribe anytime.
SIGNUP FOR YOUR FREE
CRYPTO COIN JUNKY
HANDBOOK
Plus Free Crypto Trading Guides, Tutorials, Latest Crypto News,
and Altcoin Reviews. (Coming Soon: Pro Trading Signals)
SIGNUP FOR YOUR FREE
CRYPTO COIN JUNKY
HANDBOOK
DOWNLOAD NOW
We hate spam as much as you do. Unsubscribe anytime.
Plus Free Crypto Trading Guides, Tutorials,
Latest Crypto News, and Altcoin Reviews
(Coming Soon: Pro Trading Signals)
DOWNLOAD NOW
We hate spam as much as you do. Unsubscribe anytime.
SIGNUP FOR YOUR FREE
CRYPTO COIN JUNKY
HANDBOOK