The cryptocurrency universe uses the concept of a stablecoin. They are digital coins whose value is determined by a single physical asset, but there are other variants to back up the value. Stablecoins are directly dependent on the US dollar and the ratio is 1:1. Today, many years after the issue of the coins, the volume of stablecoins has increased dramatically.
Stablecoins were created to promote the widespread use of digital currency in everyday life. The goal of cryptocurrency owners was to ensure the independence of cryptocurrency, but in practice this only increased the already high volatility of the currency. It was not safe to conduct transactions using crypto.
To regulate the exchange rate, cryptocurrency was tied to commodities, minerals, and other valuable resources — oil, precious metals, and cash. Thus, cryptocurrencies were able to stabilize at the expense of material security. Later, less volatile cryptocurrencies were called stablecoins. If you don’t know how to trade it, use https://stoic.ai/ for the automated process.
How stablecoins work
The principle of using coins is similar to how we use physical money. In fact, the value of coins is almost always equal to the assets in a ratio of 1:1, and the stablecoins themselves allow you to save capital, make a calculation, or an exchange. However, there are other options for strengthening the currency.
Depending on the stabilization of value, stablecoins are classified into three main groups:
- those whose exchange rate is stabilized by the relationship with other cryptocurrencies;
- digital coins without providing a course. They can be adjusted only by issuing new coins;
- those whose course can be maintained by tying value to physical assets or physical money.
Digital coins that are pegged to other cryptocurrencies may depend on one or more systems. Their stability is difficult to compare with the provision of digital coins based on fiat money. But among the advantages of using such stablecoins is the ability to eliminate the currency quickly and easily, as well as decentralization.
Stablecoins without physical security are decentralized, not limited to the collateral. Exchange rate control is provided by issuers using smart contracts. (buy ambien canada) For additional regulation, resort to increasing or decreasing the issue of coins.
Stablecoins linked to physical assets are equal in value to fiat counterparts. If one coin is worth a dollar, then physical money or assets are considered a guarantee of the value of the crypt. It is easier to protect such digital coins from hacker attacks, and they are quite non-volatile. Among the disadvantages is the centralization of stablecoins.
What are stablecoins for investors? It is a kind of a buffer tool, through which the owners of physical assets enter cryptocurrency markets. This is quite convenient for investors, because in one event you can convert a large amount of physical money into currency on a blockchain basis and use the funds for trade or profitable investments.
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