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Stablecoins. A guide. (First part)

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What are stablecoins

Stablecoins or stable cryptocurrencies are a type of digital asset whose value is linked to that of another asset through a parity relationship.

The most popular stablecoins maintain a 1 to 1 relationship with the US dollar, while others do so with gold or even other cryptocurrencies.

The first stablecoin was Tether (USDT), created by the company Tether Limited. It went on the market in October 2014 and until 2018 it was the only one of its kind, which allowed it to monopolize the entire segment. And also some scandals.

The emergence of DAI, from the MakerDAO project, solved one of Tether's biggest problems: trust. From there, later stablecoins such as USD Coin (USDC) were showing signs of the consolidation of the use of this type of “crypto-dollars”.

Advantages of stablecoins

  • By always being worth the same, they eliminate the volatility of other cryptocurrencies.
  • They keep the purchasing power of their users constant and predictable, without the need to use foreign currency.
  • People engaged in intense buying / selling activity can maintain stable purchasing power without the need to resort to a foreign currency.
  • They are a value transfer mechanism without geographical borders and with low commissions.
  • Most brokers accept them to exchange for fiat money or other cryptocurrencies. They are very useful for users who trade on different exchanges.

The most popular stablecoins

Among the most used stablecoins are DAI and USDC, and each has a different way of maintaining its stability. ?

DAI is a decentralized stablecoin, but supported by the Maker foundation. It works on the Ethereum blockchain, with a smart contract that regulates the amount of DAI available to maintain its parity to the dollar.

USDC grew out of the Coinbase exchange and Circle, a peer-to-peer (person-to-person) payment tool, but has a constant external audit that monitors the dollar reserves that support the value of the token.

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 11/11/2020

Digital & Hitech

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