Bitcoin, the largest cryptocurrency by market cap, is famously volatile. Launched in 2011, it reached a feverish high of almost USD20,000 on 17 December 2017 before crashing to around USD11,000 some 4 days later. The lack of price stability plaguing both Bitcoin and altcoins is holding back cryptocurrencies from displacing fiat currency. Are stablecoins the solution to price volatilty?
What are stablecoins?
Stablecoins are price-stable cryptocurrencies, meaning that the market price of a stablecoin is pegged to a “relatively stable” asset, like USD or gold. This makes them more reliable as a store of value, medium of exchange, and unit of account.
Stablecoins can be put into three main categories:
- Fiat-backed
- Crypto-backed
- Non-collateralized
Here’re the key differences TABUL8TED!
Fiat-backed Stablecoins
Fiat-backed stablecoin systems accept fiat currency as collateral, store it with custodians and issue tokenized IOU vouchers (stablecoins) on a 1:1 basis. Here’re the key details on the three most popular fiat-backed coins TABUL8TED!
Crypto-backed Stablecoins
Crypto-backed stablecoins maintain reserves of crypto-assets, held in smart contracts. MakerDAO’s Dai is widely considered the most promising crypto-collateralized stablecoin, collateralized by Ether (ETH).
Non-collateralized Stablecoins
Non-collateralized coins algorithmically expand and contract the supply of the coin much like a central bank does with fiat currencies. As its name suggests, they are not pegged to any collateral and are the most independent and decentralized form of stablecoin. Non-collateralized stablecoins have not gained as much traction as fiat or crypto-backed stablecoins. The best known algorithmic stablecoin project, Basis, shuttered in December 2018 citing regulatory issues.
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- Read TABUL8TOR’s beginner’s guide to blockchain, cryptocurrencies, cryptoccurrency exchanges, cryptocurrency wallets.
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- Read TABUL8TOR’s review of cryptocurrency cards and cryptoback apps.
***Disclaimer: This post is for informational purposes only and does not constitute a recommendation to buy cry
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