What are Stablecoins?

What is a stablecoin?

One of the main things cryptocurrencies and stocks are famous for is their volatility. It’s what many value due to the fact that an investment into them has the ability to go up and down depending on market conditions. However, while most coins rise and fall in value over time, ‘stablecoins’ (for the most part) remain just that: stable.

What makes stablecoins stable in nature is the fact that they are generally pegged against a fiat currency which doesn’t fluctuate as heavily as other asset classes.

Are stablecoins really stable?

As stablecoins are typically not pegged to assets that experience high levels of volatility in market prices.These assets are typically not used for speculative investment. Stablecoins exist to provide the same benefits of blockchain based cryptos, yet without the associated volatility. They can also be used to send quick and cheap cross-border payments and as a store of value.

Many governments are now proposing the use of stablecoins. Some recent examples include; the Russian CryptoRuble, the Swiss e-Kroner, or the Estonian Estcoin.Stablecoins are playing an increasingly important role in the Internet of Tomorrow (IOT). Growing in popularity, stablecoins have the potential to become a critical part of a global financial system.

How do stablecoins work?

Stablecoins are ’collateralised’, this means that they obtain their value from being ‘pegged’ to another asset. You will find that there are three types of stablecoins, each linked to a separate class of asset.

Fiat-pegged Currencies

As the name suggests, these are tied to fiat currencies like the US Dollar, and are the most common type of stablecoin.

Probably the most well known stablecoin on the market is Tether, which is a fiat-pegged currency linked to the US Dollar.

Crypto-Pegged Stablecoins

These coins simply represent deposits of cryptocurrency, in the case of crypto-pegged stablecoins, each deposit must remain more valuable than the value of the stablecoin, in order to avoid losses.

A good example of a crypto-pegged stablecoin is Bitcoin BEP2 or BTCB. BTCB is pegged to Bitcoin and one BTCB will always equal one BTC.

What stablecoins are available on CoinSpot?

CoinSpot offers the ability to purchase a number of stablecoins, included in the list are Tether, USD Coin, Reserve Rights and Tribe, though the list updates constantly.

Stablecoins are currently the most significant means by which money flows across the cryptocurrency ecosystem. They serve to provide a much needed bridge between exchanges, when fiat currencies cannot be directly transferred between them. They also provide a huge benefit for citizens of countries where the national currency itself experiences high levels of price volatility, often due to hyperinflation.

All of the above stablecoins can be quickly and securely traded on Australia’s most trusted exchange, CoinSpot. If you haven’t already registered for a CoinSpot account, you can do so for free here.