What are stablecoins, and why are they so important? ? Is there really a need for crypto assets that cannot appreciate in value? In this article, we will cover everything you need to know about it:
The short answer is yes, stablecoins are important! But, putting it in detail, it is essential to remember that the world of cryptocurrency may be quite a turn-off due to the volatility and price instability that comes along with it. Of course, the idea of having a currency free from the shackles of Governments and Central Banks is alluring; the concept of decentralized finance seems like a dream come true. However, with common decentralized currencies like Bitcoin, volatility is a pain, a blessing, and a curse. Of course, it is beautiful to wake up from bed and see your portfolio with a 70% overnight increment, but if the reverse were the case, you wouldn't love it.
Despite the profit possibilities with cryptocurrency, losses seem inevitable too. Thus arises the question of how can we lock in profits? Or better still, how can we participate in DeFi without worrying about profits or losses?
These rising questions birthed the creation of stablecoins!
Because of cryptocurrency's high volatility, it cannot be used entirely as a medium of exchange in general but rather as a store of value. So, you buy a digital asset– Bitcoin, intending to resell it and hope to profit from it rather than using it to buy something. Let us demonstrate this inadequacy with a scenario: How would you feel if you sold a Mercedes worth $43,566 today, receiving payment as 1BTC; the next day, Bitcoin loses value, and 1BTC you received yesterday is only worth $40,000? We both know how you would feel seeing $3,000 lost due to volatility. As a result, it becomes difficult to rely on cryptocurrency for daily transactions without fear of price fluctuation.
However, with the growth of DeFi, it becomes crucial to solve this problem of market volatility and address the inadequacy of cryptocurrency as a medium of exchange daily. Considering the incessant rise and fall of cryptocurrencies' value, there is a need for a digital asset that can provide stability in a volatile market. Stablecoins play a vital role in providing this stability.
What Are StableCoins?
Stablecoins, as the name implies, are cryptocurrencies that are not subject to the price fluctuations that describe the cryptocurrency market.
Stablecoins are digital currencies backed by fiat money, other cryptocurrencies, or physical assets such as gold. These coins' values do not fluctuate much because stable investments support them.
Similarly, some stablecoins can be found unrelated to other currencies but are controlled by algorithms that maintain their prices.
Stablecoins operate in the context of decentralization, which is essential to you as an investor, while also ensuring the high level of stability that cryptocurrencies like Bitcoin, Ethereum, and Dogecoin, cannot provide.
Types of StableCoins:
There are four main types of stablecoins. Regardless of the underlying collateral structure, they all project the same goal– stability.
A. Fiat-backed Stablecoin
The most common types of stablecoins are backed by fiat currencies. They are backed in a 1:1 ratio, which means that one stable coin is equal to one unit of other fiat currency. This type of stablecoin is classified as an off-chain asset because the underlying collateral is not another cryptocurrency. An actual fiat currency is kept by a bank or a third-party company that holds an actual fiat currency.
A third-party certifier is typically used to create StableCoins based on fiat currency, ensuring that the corresponding token is destroyed when exchanged for fiat currency. Therefore, the stablecoin value will not fluctuate as long as the country's economy of the third-party certifier is tied to a stable currency. Tether (USDT), True USD (TUSD), and Binance USD (BUSD) are some of the most common stablecoins in this category.
B. Crypto-based Stablecoin
These are stablecoins that are backed by another cryptocurrency. It is similar to a fiat-paired currency, but the collateralization is done with a digital asset. Instead of relying on a central issuer, the process takes on-chain and employs smart contracts. This model eliminates the need for a central authority because they are conducted on the blockchain. As a result, crypto-backed stablecoins are more decentralized, secure, and completely transparent.
However, because volatile assets back them, these stablecoins may not be as stable as they appear and may experience slight price fluctuations. DAI is the most common stablecoin in this category.
C. Commodity-based Stablecoin
These stablecoins are backed by other exchangeable assets, such as precious metals. The most valuable commodities are gold, oil, and real estate. These stablecoins have the same valuation as the assets they represent. Those who purchase this type of stablecoin majorly do so as an investment because these commodities can change in value, reflecting the importance of its equivalent stablecoin. However, this can be both good and bad, depending on the increase or decrease of the commodity's value. Stablecoins in this category include Tether Gold (XAUT) and Paxos Gold (PAXG).
D. Algorithmic Stablecoin
Algorithmic stablecoins are stablecoins that maintain their parity through a self-sufficient and decentralized economic protocol. They are based on an economic protocol to increase or decrease the supply of cryptocurrency by burning or mining tokens to maintain parity. There is no central issuer for algorithmic stablecoins. Instead, algorithms and smart contracts manage them.
When the token's market price falls below the price of the fiat currency it tracks, an algorithmic stablecoin system will decrease the number of tokens in circulation. Similarly, if the token's price rises above the price of the fiat currency it tracks, new tokens enter circulation to reduce the stablecoin value. Ampleforth (AMPL) is a common stablecoin in this category.
Benefits of StableCoins
The distinct advantage of stablecoin technology is its use as a medium of exchange and how it bridges the fiat-to-crypto currency dichotomy. Furthermore, as a digital payment mechanism, stablecoins are highly efficient. You can conveniently use them to settle payments and send money globally.
Stablecoins have the following advantages:
- They can be quickly transferred.
- Real-world assets back them.
- You can use them anywhere in the world.
- They can be linked to almost all digital assets.
- They provide you protection during market volatility.
- You can perform international corporate payments with them.
- Finally, they increase the mobility of crypto assets across the ecosystem.
Did you know you can instantly swap your tokens in the CC Wallet at zero fees? CCTIP offers instant transactions with the lowest fees at no extra cost for swapping on the chain.
Below is a list of stablecoins available on the CCTIP wallet for users to swap, hold, or tip.
- Dai Token (DAI)
Dai token is a stablecoin built on the Ethereum blockchain, with a soft peg to the US dollar. DAI is a decentralized, unbiased, and collateral-backed stablecoin. DAI is collateralized by other cryptocurrencies via an automated smart contract system governed by MakerDAO.
2. TerraUSD (UST)
TerraUSD is an algorithmic, scalable, and decentralized stablecoin on the terra blockchain whose value is linked to the US dollar. TerraUSD was created to provide a scalable solution for DeFi, amid severe scalability concerns with other stablecoins. A third-party certifier does not back the UST. Instead, to mint one TerraUSD, $1.00 of TerraUSD's reserve asset must be burned. This minting mechanism allows UST to fulfill the requirements of DeFi protocols without falling short on scalability.
3. USD Coin (USDC)
USD Coin (USDC) is a digital currency backed entirely by US dollar assets. USDC is a stablecoin tokenized with the US dollar. Hence, each unit of USDC in circulation is backed up by a corresponding dollar in reserve, which is held in a mix of cash and short-term US Treasury bonds. Financial institutions issue the USDC.
4. True USD (TUSD)
True USD is a US dollar collateralized stablecoin executed on the Ethereum blockchain network. TrueUSD is one of several cryptocurrency stablecoins managed by TrustToken, a tokenization platform for real-world assets.
5. Synth USD (sUSD)
Synth USD is a scalable and decentralized stablecoin that monitors the value of the US dollar using price feeds provided by Chainlink's decentralized network of oracles. You can use synths to hedge and reduce risk, speculate on price movements, and access previously unavailable assets or markets without ever holding the underlying asset.
6. Tether USD (USDT)
Tether USD is a fiat-backed stablecoin pegged at the US dollar's equivalence. The USDT mirrors the USD on the blockchain by holding a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves equal to the number of USDT in circulation in USD value. The USDT was created specifically to provide users with stability, transparency, and low transaction fees by bridging the gap between fiat currencies and cryptocurrencies.
7. Binance USD (BUSD)
Binance USD is a stablecoin issued on the Ethereum blockchain pegged to the US dollar (USD). BUSD is a digitized US dollar that is always purchased and redeemed at one BUSD for one US dollar. BUSD can be used anywhere ERC-20, and BEP-2 tokens are accepted for commerce, loans, and payments on the blockchain at a low cost.
8. Ampleforth (AMPL)
Ampleforth is an Ethereum-based stablecoin that is algorithmically adjusted and uncollateralized. As explained earlier, Algorithmic stablecoins like Ampleforth differ from other stablecoins in how it maintains price stability. It is intended to serve as the foundation of the new decentralized economy by providing an asset that cannot be diluted by supply inflation. Also, Ampleforth remains unaffected by the price action of other cryptocurrencies by converting price volatility to supply volatility, so AMPL token supply increase or decrease based on price.
9. Pax Dollar (USDP)
Pax Dollar is a flat-collateralized stablecoin that is "the world's first regulated crypto asset." The Pax Dollar tokens (USDP) are issued on the Ethereum blockchain as ERC-20 tokens and are collateralized 1:1 by USD held in Paxos-owned US bank accounts. Paxos provides customers with the unrivaled assurance that their USDP is backed one-to-one by the dollar. At any time, you can convert USDP to equivalent US Dollars.
Easily send, receive, hold or swap Stablecoins on CCTIP!
You can quickly deposit, withdraw, or swap stablecoins using the CCTip wallet at the lowest possible fees.
Learn more about sending/ receiving and swapping tokens!
CCTIP offers the lowest cross-chain transaction fees!
You can swap USDT, USDC, DAI, and other stablecoins listed above between 200+ cryptocurrencies present on CCTIP. Whether performing a cross-chain swap or an "on-chain swap," CCTip offers the lowest possible transaction fees. You can swap various currencies within your wallet for absolutely free!
Enjoy Tip, Airdrop, or Play-to-Earn Stablecoins via CCTIP:
CCTip offers the easiest ways to send Tips and Airdrops to your friends or community members using CCTIP Bot via multiple social platforms like Twitter, Discord, and Telegram.
If you want to airdrop stablecoins with a touch of fun and thrill, you should immediately explore CCTip's Game Airdrops, where you create one-of-a-kind free games! A new way to airdrop where you play to earn free crypto!
Now send stablecoins or choose from 500+ tokens to tip, airdrop, or play games with your community!
Check out details on tipping instructions on Twitter, Discord, and Telegram.
Create an exclusive Stablecoin Community with CCTip DAO:
A community of certain stablecoin holders can be created and regulated using the CCTip DAO. This allows you to set a minimum of tokens required for a new member to join the telegram/discord group. It is a beneficial tool for crypto start-ups and tokenized communities to engage with their target audience and grow their community.
For example, an exclusive group accepting the USDT or USDC community can be created by simply verifying the crypto assets of intending members!
We hope you have gained insights and information about Stablecoins and how you can seamlessly use them with CCTIP services!
Remember, you can receive, hold, tip, play games, or swap stablecoins on CCTip. Now grow your community efficiently and quickly by exploring the various top features offered by CCTIP! Create an instant account now and enjoy cheap transaction fees with many features!
If you have any questions or comments, please leave a comment or join our community for more discussions, tips, and airdrops.