What are Stablecoins?

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Temps de lecture : 2 minutes

Stablecoins, as the term implies, are in fact stable cryptocurrencies, not exposed to that price fluctuation typical of the crypto-currency market. But what makes them invulnerable to volatility? Below is a guide to the characteristics and main types of Stablecoin.

Stablecoin: what is it?

Stablecoins are crypto-currencies which, unlike bitcoin and its much-touted rivals, do not suffer from volatility. The reason is quickly stated: Stablecoins are pegged to another financial asset.

This is a strong point, since one of the criticisms traditionally levelled at bitcoin and other altcoins is precisely that their price is unstable, which could hinder their use as a means of payment.

In short, Stablecoins retain the revolutionary components of cryptocurrencies while stripping them of their weaknesses: these virtual currencies evolve within the decentralized framework dear to cryptos and their investors, but – at the same time – guarantee the high degree of stability that Bitcoin, Ethereum or Litecoin cannot offer.

Three types of Stablecoin

Depending on the financial asset to which they are linked, we can distinguish three types of Stablecoin:

Stablecoins linked to fiat currencies: some Stablecoins, to ward off volatility risks, are linked to fiat currencies such as the dollar or euro, or even gold. The process involves depositing an escrow sum – in euros, dollars or pounds sterling, depending on the asset to which the Stablecoin is linked – in a bank account.

Stablecoins linked to other cryptocurrencies: some investors, however, wish to break free from the traditional payment structure, and use crypto assets as a guarantee of stability. Usually, these Stablecoins are pegged to different crypto-currencies to mitigate volatility risks.

Non-asset-backed Stablecoin: there are also non-asset-backed Stablecoins. Also known as fiat stablecoins, these crypto-currencies work like the fiat currencies of the traditional banking system: a kind of central crypto-bank regulates the supply and demand of crypto-currencies based on rules encoded in a smart contract.

What are the main Stablecoins?

The best-known – and most widely used – Stablecoin is Tether, created in 2015 under the name Realcoin. Stablecoin, managed by a central authority, Tether limited, is pegged to the dollar, euro or Chinese yuan.

The world’s most-traded Stablecoin, meanwhile, is TRUE USD, created in 2018. This dollar-pegged crypto-currency uses an erc20 token to be stored in a digital wallet and relies on smart contracts to certify parity between reserves and issued tokens.

Next in line are Staxos Standard, a Stablecoin created in 2018 and backed by the Financial Services Department of the NYSE (New York Stock Exchange), and Digix Gold, a crypto-currency pegged to gold – one token equals one gram of the asset – which relies on the Ethereum blockchain.

The list of the most popular and reliable stable currencies also includes Gemini Dollar, MakerDAO, USD Coin, bitUSD (linked to the greenback), Statis EURO (linked to the European currency) and Alchemint Stantards (linked to the Singapore dollar).

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