Stable Coins – What Are They and What Do They Mean?
One of the main issues with the cryptocurrency world is that most of the coins you can buy and trade are not holding their value all the time. In fact, they tend to either go up or down in value super-fast, so you have to find a creative way to tackle this process. And stable coins might be able to assist.
What are stable coins?
These are cryptocurrencies designed to maintain stable values. Tether is a good example, because this is a blockchain based asset that will continue to be traded for $1. It’s connected to the USD, and it will continue to be like that in the long run. Although every stable coin has its own share of mechanism, they all have the same main idea. They are holding a collateral and they manage the supply. This will offer incentives to the market in order to trade the coin at the specific price.
In the cryptocurrency world there are always going to be restrictions and trades that you just can’t do because you are using a particular currency. That’s obviously going to be quite the issue for the most part, especially due to restrictions and regulations. Exchanges will not be able to have a deal in USD, so they will have to rely on cryptocurrencies that actively maintain their value stable for as much time as possible.
Using stable coins
The cryptocurrency exchanges obviously prefer using stable coins because these hold their value and people are more interested in selling and using them in a great and unique manner. Being able to use stable coins like that is always important because you get to have a lot more focus and trust in the solutions you are focusing on. Most of the time this can be very hard to do, so you always have to push the boundaries as you try to identify the right solutions to suit your needs. It’s never easy to try and achieve greatness especially in the long run, and the more you do that the better it will be.
And the issue with some of the stable coins is that they are vulnerable to collapse. In case there are problems, coins like Tether will not have the right amount of USD backing in order to transfer back to fiat. That can lead to a collapse if it’s not handled correctly, so knowing how to manage and handle all of this can be extremely important in the long run.
But tether is not the only stable coin out there. The Gemini stable coins are also having the 1 to 1 approach when it comes to USD. The things that makes them better here is that they have regulatory compliance and transparency. That’s definitely paying off quite a bit and it brings you a much better role and cool results for you to explore all the time. But governments involved in the initiative do end up with issues, because the platform can freeze any account and not allow that owner to transfer the tokens. The fact that there’s a single point of failure might be ok, however making the tokens non-transferable is obviously a major downside.
This is a decentralized autonomous organization that also works against the US dollar. But it’s backed by Ethereum, which is very important. Their DAI stable coin is also worth $1 and they maintain stability via a very powerful smart contracts system that’s designed to be autonomous. In order for you to get the DAI coin you will have to send the tokens to the Maker platform and they will lock the tokens up. This is the first stable coin backed by ETH. The downside is that it’s super complex and it moves at a slow pace. So it might not be able to offer the overall speed and efficiency that a lot of people expect from this kind of stuff. It’s still worth it to begin with, but results can definitely be improved with it.
This is yet another example of coin that maintains the $1 approach but they use consensus as a main focus here. They are contracting and expanding the coin supply based on the situation. In case the coin value goes under than $1, they are making coin holders buy bonds and the coins used for that will be destroyed. So as the price increases they will remove any extra coins to maintain stability. It offers a great approach towards stable coins and the approach is great. It’s backed via prominent funds, but its base bonds process does need faith in the protocol, and that can be a double-edged sword more often than not.
Havven is also focus on stability, but in their case they have a system that automatically backs itself with two coins. The Nomins is the first coin and this is the stable coins. Havvens are reserve tokens. A fee for the Nomins transactions goes to the company and the system will release Havvens in order to stabilize itself and avoid problems.
Pros and cons for the crypto industry
As you can imagine, the primary benefit is that we get to have stability in the cryptocurrency world, which is super hard to achieve at this time. Not only that, but having systems that automatically adjust and correct themselves in order to avoid surpassing certain values is super impressive and also very well worth using.
The downside is that many of these systems are super complex and that means they might fail at times if there’s even the slightest mistake. Still, the fact that we can have stable coins and use them in a meaningful way for transactions is very important. Most stable coins have been able to maintain their liquidity and value for quite some time. And that means the potential of having stable cryptocurrencies is definitely there. We just have to trust on them and rely on the system created here to deliver better and more powerful results in the long run. It’s definitely worth checking out stable coins if you want stable cryptocurrencies!