Stablecoins are one of the most exclusive crypto assets available on the market. Its purpose is to mimic the stability that traditional fiat currencies like the dollar enjoy while providing an easy vehicle to quickly send and receive money from around the world.
Learn more about Stablecoins
Stablecoins like the crypto Goldcoin are classified into several different areas based on how the underlying unit is linked. Some depend on assets like the US dollar or the euro, while others go in a different direction.
In general, fans of Stablecoins argue that the crypto category offers investors a stable and consistent tool to escape volatility or to park investments as part of a ‘safe haven’ strategy.
Others claim that the lack of price movement in Stablecoins could make them useful for daily adoption among ordinary citizens around the world to pay for goods and services.
The different categories
Linked to Fiat
Fiat-backed Stablecoins are still the most common type. These coins are pegged to the coin in a 1: 1 ratio, and a central issuer ensures the validity of the coin by keeping an adequate amount of it in reserve.
Skeptics of fiat-backed cryptocurrencies express concern about counterparty risk. They claim that there is too much risk in relying on a central issuer to be honest and transparent about whether there really are reserve funds.
Linked to Commodities
Assets like Palladium Coin make up the second category of Stablecoins, which are collateralized by commodities. Hence, these types are backed by items like gold, silver, palladium, platinum, diamonds, oil, or even real estate.
In fact, these types of Stablecoins generate great interest due to their growth potential.
Since the underlying assets have value, the currency could appreciate if the linked product rises.
With or without crypto guarantee
Other categories of Stablecoins include crypto secured and unsecured options. In the case of crypto-secured Stablecoins, the underlying asset is a basket of other cryptocurrencies.
The overcollateralization occurs to mitigate the risk of volatility, as digital currencies are subject to large price swings. And, the main concern is that, these currencies are decentralized, since a single entity does not control the funds.
So, despite their promise, their complexity puts them on a slower adoption course than other options.
At first glance, unsecured Stablecoins might not make sense. In reality, they are based on algorithms to regulate the supply of the currency, so the prices remain stable.
Holders would lose their money in the event of a market crash as there would be no guarantee to settle the coin, because the coins are not guaranteed for an asset.
Thus, unsecured Stablecoins need constant growth to survive.
Global governance and the stablecoin
Regulators, such as those associated with the European Central Bank, have expressed optimism about the potential of Stablecoins to foster financial innovation and encourage remittances and cross-border payments quickly and cheaply.
However, they also argue against the future potential of Stablecoins, positing that they could negatively affect financial stability and sovereignty.
In fact, some claim that the safeguards seen with traditional banks and financial institutions are not seen in the world of cryptocurrencies, which could expose a currency to runs if the reserve asset is not guaranteed to a fixed value.
Others claim that investment in assets by Stablecoin issuers could affect the supply of certain commodities. And therefore potentially affect the volatility of interest rates.
Stablecoins and DeFi
The rise of decentralized finance (DeFi) has fueled the growth of Stablecoins. In fact, cryptocurrency enthusiasts have turned to currencies like USDC to interface with DeFi protocols for high-yield income or even to help provide liquidity to pools.
Some updates to Stablecoins will succeed in boosting future growth potential as they become easier to adopt and use.
It is worth noting that following the announcement of the USDC 2.0 update, many argued that Stablecoin would gain more traction in the DeFi world. This is because the changes would help circumnavigate the Ethereum gas system, which could reduce network congestion and the cost of transactions.
Overall, Crypto Stablecoins continue to enjoy strong growth prospects and future prospects. Mainly as the broader virtual currency and Blockchain industry matures.