It is quite common to encounter constantly fluctuating prices in the cryptocurrency world. However, there is a solution for those who do not want to be affected by these fluctuations: Stablecoin. This concept, which allows digital access to commodities as well as fiat currencies, is very popular and functional in the cryptocurrency world. So what exactly is a stablecoin and what advantages does it offer? The answers to your questions are in this article.
What Does Stablecoin Mean?
Stablecoins are cryptocurrencies that digitally represent physical assets and are indexed to their value. Although they are generally used for healthy trading and value investment purposes, they have many different uses. It has many benefits such as reducing volatility in the cryptocurrency market and eliminating the problem of accessing assets. Stablecoins, which can make investing easier and more advantageous for everyone, have gained a strong place in the cryptocurrency world.
For example, among the stable coins that first come to mind is Tether, which represents the US dollar and is pegged to the price of the US dollar. USDt is available. This cryptocurrency, which was launched in 2014, also made history as the first stablecoin produced. Moreover, considering its market volume, it can be said to be the most used stable coin. To learn more about this cryptocurrency, see, “What is Tether (USDT)?” you can take a look at our content on the subject.
stablecoins were created to represent a fiat currency. There may also be stablecoins indexed to gold or other commodities. Additionally, stablecoins can be secured or unsecured. “What is a stablecoin ? ”Now that we have answered the question briefly, we can now go into the details of the subject.
What are the Stablecoin Types?
Stablecoins are divided into different types and the purpose each type serves is different.
- Fiat Currency-Indexed Stablecoins: Digital assets whose values are pegged to traditional fiat currencies (e.g., US dollar, euro, Mexican peso).
- Commodity- Indexed Stablecoins: Digital assets whose values are pegged to commodities (such as gold, silver or oil).
- Stablecoins Indexed to Cryptocurrencies: These are digital assets that derive their value from other crypto assets. These types of stablecoins focus on decentralization.
In addition to stablecoin types, there are 3 more important concepts.
What is a Collateralized Stablecoin?
Collateralized stablecoin is defined as a digital asset backed by assets held in a reserve to ensure the stability of its value. This collateral, or backing, can be provided by various types of assets, such as fiat currencies, other cryptocurrencies or commodities.
What is an Unsecured Stablecoin?
They are digital currencies that are not backed by any assets to maintain their value, but instead use algorithms and smart contracts to balance supply and demand.
What is a Hybrid Stablecoin?
They are digital assets that aim to ensure value stability by combining both secured and unsecured stablecoin features.
What Does Stablecoin Do?
Stablecoins have many different uses. “What does stablecoin do?” The following information may be useful to answer the question.
- Ensuring Price Stability: Stablecoins can protect against volatility in cryptocurrency markets. These digital assets, whose value is fixed, can help users protect their cryptocurrencies from market fluctuations by converting them into stablecoins.
- Fast and Low-Cost Transfers: Stablecoins can enable faster and lower-cost cross-border transfers compared to the traditional banking system. This can be considered an ideal application method, especially for international money transfers.
- Crypto Trading and Investments: On cryptocurrency exchanges, investors can easily trade between other cryptocurrencies using stablecoins. Since stablecoins act as a shelter against volatility, investors can designate a trading pair as a stablecoin in their trading transactions to protect themselves from market fluctuations. For example, you want to buy Ethereum. Making this transaction in ETH/BTC parity may cause you to encounter a more volatile situation compared to doing it in ETH/USDT parity. Because the BTC price may be much more volatile in the moment compared to USDT, which is indexed to the American dollar.
- DeFi Applications: Stablecoins They could be an ideal currency for decentralized finance (DeFi) applications. DeFi protocols can bring loans, borrowing, staking and other financial transactions to users using stablecoins, which are stable and predictable assets in the case of fiat currencies.
- E-Commerce and Daily Expenses: Stablecoins can be used on e-commerce platforms and daily expenses. The fact that their values are stable reduces the risk of price fluctuations for service providers and consumers. This could also help the adoption of stablecoins get better.
- Programming: Stablecoins can be integrated with smart contracts. This may pave the way for automatic transactions under certain conditions. This can provide flexibility for trade agreements, payments and other financial transactions.
Stablecoins play an important role in the cryptocurrency ecosystem and can provide various financial functionalities for users. Thanks to these features, stablecoins are becoming increasingly popular in the crypto world. In addition, it also brings some advantages. Although the advantages provided by stablecoins are similar to their intended use, there are some differences between them.
What are the Advantages of Using Stable Coins?
Stablecoins can offer advantages over both fiat cryptocurrencies, commodities, and many traditionally accepted situations in general.
- Money Transfer: Money transfers can be made 24/7 on the blockchain with stable coins. Since transfers will be via blockchain, there is no need for bank approval or waiting for the transfer time.
- Fast Transaction: Compared to banks, transfer transactions can be faster and cheaper.
- Savings Storage: If savings are made and stablecoins are preferred for this savings, banks may not be preferred or physical storage areas may not be needed to store savings. Instead of banks or physical storage areas, cryptocurrency exchanges or cryptocurrency wallets can be preferred as a savings storage method.
- Additional Return: If an additional return such as interest is desired, it may be possible to do this through stablecoins. Moreover, the additional return opportunity to be obtained may be even higher compared to banks.
- Financial Inclusion: If a person does not have a bank account and still wants to carry out financial transactions, this can be possible thanks to stablecoins. Thus, financial inclusion in the world can increase thanks to stablecoins.
- Ability to Purchase Small Amounts: If you want to invest in commodities through traditional channels, the minimum figures may be high. However, those who want to invest in commodities with stablecoins can do so with very small amounts.
- Security and Transparency: Stablecoins, which can be created thanks to blockchain technology, can bring about safe and transparent transactions. Since transactions are recorded on a public ledger, they can be verified and tracked by anyone.
Why Does Stablecoin Price Change?
The main reasons behind the change in the price of stablecoins may be the change in the supply-demand balance in stablecoins and technical glitches. If there is a reserve asset to which the relevant stablecoin is tied and the price of this reserve asset changes, the value of the stablecoin will undoubtedly change as well. To consider these factors in more detail, the following reasons can be considered:
- Value of Collateral Assets: Stablecoins are usually tied to a reserve asset such as the US dollar or gold. If the value of this collateral asset fluctuates, the value of the stablecoin will change accordingly.
- Balance of Supply and Demand: In fact, like any asset in the world, the price of stablecoins can vary according to supply and demand in the market. If demand for a stablecoin increases and supply remains the same, its price will rise temporarily. Similarly, if demand decreases, the price may also decrease.
- Reliability and Transparency: Investors’ trust in stablecoins is affected by the transparency of the relevant stablecoin. If doubts arise about the management of a stablecoin or if there are questions about the reserves it holds, this may bring about a fluctuation in price. Investors may want to make sure that the reserves of the relevant stablecoin are fully supported and see a report for this.
- Regulations and Legal Situation: Regulatory changes and legal uncertainties in countries may lead to uncertainties in the price of stablecois. For example, let’s say a country imposes a regulation that restricts or bans the use of stablecoins. In such a case, the demand for the said stablecoin may drop suddenly.
- Technical Problems: If the relevant stablecoin encounters a technical problem, it may cause loss of trust. This may cause price fluctuations.
Although one of the most important tasks of stablecoins is to ensure price stability, sometimes small or large fluctuations may occur in their prices due to the above factors.
Which is the Most Popular Stablecoin?
Currently, Tether (USDT) is the most popular and highest trading volume stablecoin in the cryptocurrency market. USDT’s wide acceptance is evident by the fact that it is actively traded on many crypto exchanges and trading platforms. This stablecoin is pegged 1:1 to the US dollar and is often preferred for trading crypto assets. Of course, it should be taken into consideration that USDT may be dethroned in the future depending on some developments.
CoinMarketCap data at the time of writing this article, the 10 most preferred stablecoins according to transaction volume are as follows.
- Tether USDt (USDT)
- USDC (USDC)
- Dai (DAI)
- Ethena USDe (USDe)
- First Digital USD (FDUSD)
- Ethena staked USDe (sUSDe)
- USDD (USDD)
- Frax (FRAX)
- TrueUSD (TUSD)
- USDB (USDB)
When these cryptocurrencies are examined, it is seen that they are directly linked to the American dollar. The main reason for this is that users need digital US dollars for their intended use in their transactions. It should be noted that this ranking is current only and may change at any time. To follow this ranking up to date, platforms that provide data in this context can be visited.
How to Buy Stablecoin?
ICRYPEX cryptocurrency exchange offers investors a safe and user-friendly way to trade stablecoins, digital assets that can maintain stable price movements. Depending on the needs of the users, it connects them with many stablecoins indexed to the Turkish lira, US dollar, euro, and commodity assets such as gold and silver. ICRYPEX cryptocurrency exchange is an ideal platform for stablecoin trading with its advantages such as high liquidity, low transaction fees and 24/7 customer support. You can start trading with ICRYPEX immediately to protect yourself from the fluctuations of the crypto market and benefit from the many advantages offered by stablecoins.
