Guide to Stablecoins
Price instability is one of the biggest obstacles in cryptocurrencies. The market is so volatile that it is difficult to use cryptography as a daily transaction, international transfer, and generally accepted payment gateway. However, some crypto startups take it seriously and are working to achieve a smoother integration between the current financial paradigm and blockchain technology. They have developed so-called stablecoins. To help both new investors and Millennials quickly get into the swing of things, we pen down a few frequently asked questions. The drum rolls:
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What are Stablecoins?
A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar, commodity's price such as gold and silver which is also known as reserve assets to stabilize the price.
A stablecoin’s value is attached to a real-world currency, also known as fiat currency. For example, Fiat-Collateralize Stablecoins known as Tether (USDT) is worth 1 US dollar and is expected to maintain this value no matter what.
Stablecoins allow for the convenience of cryptocurrency, which mean fast settlements and fewer regulatory hurdles, along with the stability of fiat currencies.
What are Stablecoins used for?
Like most coins, the most obvious use case would be to use them as a medium of exchange for day-to-day purchases. However, since these coins are not very popular at the moment, no one really accepts them as a payment method. So, the main usage of stablecoins today is actually on cryptocurrency exchanges.
Traders can trade volatile cryptocurrencies for stable cryptocurrencies when they want to lower their risk. For example, if a trader invested in Bitcoin and the trader does not want to risk the price of Bitcoin falling against the US dollar now, the trader could just exchange his/her Bitcoins for USDT and retain his/her dollar value. Once the trader wants to “get back into the game” to hold Bitcoins, the trader could just exchange his/her USDT back to BTC.
What other great advantage do Stablecoins have?
Not only stablecoins attempts to offer price stability and are backed by a reserve asset, it offers traders the ability to move funds between exchanges relatively quickly, since crypto transactions are faster and cheaper than fiat transactions. The option for such a fast settlement between exchanges makes arbitraging more convenient and closes the price gaps that traders usually see between Bitcoin exchanges.
Stablecoins Comparison: USDT, USDC and TUSD
The most commonly used fiat-collateralized stablecoins include but are not limited to:
Tether (USDT) is an Ethereum token that is pegged to the value of a U.S. dollar (also known as a stablecoin). Tether’s issuer claims that USDT is backed by bank reserves and loans which match or exceed the value of USDT in circulation.
USDCoin (USDC) is a stablecoin that claims to have a 1:1 value with the actual US Dollar which operates within US money transmission laws. Essentially, that means one US Dollar Coin (USDC) should equal one real US Dollar, giving some much-needed stability in the market. Originally an ERC-20 token, it has since expanded to the Algorand and Solana blockchains.
TrueUSD (TUSD) is a stablecoin running on Ethereum that attempts to maintain a value of US$1.00. The supply of TUSD is collateralized by US dollars held in escrow by banks. TrueUSD uses multiple escrow accounts to reduce counterparty risk and to provide token-holders with legal protections against misappropriation.
|Inception||Q3 2014||Q3 2018||Q1 2018|
|Backed by||1:1, USD||1:1, USD||1:1, USD|
Source: coinmarketcap.com (2021/06/28)
All coins are built on the same principle. The centralized entity keeps the assets in a trust account and issues corresponding tokens, which constitutes a 1:1 claim against the underlying assets. The newer stablecoin will be issued on the Ethereum blockchain as ERC-20 tokens. This means that it is highly compatible with most software, hardware wallets, exchanges, and other Ethereum projects.
In terms of active users, transactions and trading pairs, Tether has outperformed USDCoin and TrueUSD. Nevertheless, the circulating supply of Tether is shrinking, and USDCoin and TrueUSD have grown rapidly.
Recently, USDCoin seems to have gain traction as the most used fiat-collateralized stablecoin. While USDC is currently the second largest stablecoin on the market, it’s commonly known that Tether has been unable to provide sufficient evidence that their supply is fully collateralized by an equal amount of underlying US legal tender.
Start Stablecoin trading with ABCC
ABCC now offers an easier than ever way to deposits from your trading accounts with stablecoin, just click on the stablecoins to start depositing!
Please note: Before deposits , all traders need to complete account verification (KYC) on ABCC Exchange.
Upcoimg TRC20-USDT and other Stablecoins, so stay tuned.
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You should be aware that cryptocurrencies are subject to high price-volatilities. You are solely responsible for determining whether any investment, investment strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. ABCC reserves the right to rescind and terminate our services to users in countries and jurisdictions where relevant laws and regulations apply.