It has been a decade since the advent of the first cryptocurrency and till now, we have seen quite a few crypto coins that have emerged as a potential investment option or a fintech solution. We have seen many cryptocurrencies so far and each one of them brings some or other benefits to the users. So far, we have treated most of the crypto coins as an option of investment but a large number of them are also considered as a fintech solution because they expedite the transactions and make them faster, safer, and more cost-effective. They also allow you to have the complete governance of your assets sans any interference from the government or any other centralized body.
In this article, we are going to discuss stablecoin that has come into existence recently and has gained plenty of attention because of its merits.
What is Stablecoin?
Stablecoin is one such cryptocurrency that has been created for reducing the volatility in the crypto market. It comes with many noticeable attributes and one of them is that be pegged against any exchange-traded commodity, precious metal, fiat money or another cryptocurrency. With this particular merit, stablecoin becomes tradable with any other aforementioned assets and its algorithm makes its working more reliable for the users. It gains all these distinct features from its very development process and the method that is used in making this coin. Stablecoin is created using the seigniorage-style that is different from the conventional method of forging digital coins, let us dig a little deeper to understand that fully.
Seigniorage
It is a French word that denotes the difference between the cost of assets and the price incurred for their production and distribution. However, the term is used for multiple financial activities such as sovereign revenue, positive return, interest-free loan, solvency constraints, and inflation tax as well. In terms of cryptocurrency, Seigniorage is an algorithm that helps in the creation of coins without backing them against each other. It brings more value to the coin and makes it fungible with a wide array of assets. There are various purposes that this coin serves and they make the trading of digital assets much more efficient and valuable. For getting a profound understanding of them, you need to be familiar with their very major characteristic.
What do you mean by backed stablecoins?
The advantages of stablecoins are many but the most prominent one is that they are asset-backed which makes them a reliable option for all the investors. They are helpful in reducing the financial risk and are not correlated to each other as opposed to the other crypto coins that have a high degree of interconnectivity. Thus, even if the value of commodities or stock falls, it finds some value because it is secured against multiple items. It finds the right value without even losing good faith in the market and gives plenty of options as many underlying assets are there to support the holder.
There is a mechanism for redemption and it gets very easy for the analysts to control the arbitrage in transactions. You also gain a high level of control and create a better example for the rest of the investors. With this cryptocurrency, it is easier to gain confidence without putting in high cost and volatility is always in check because of its ingrained preventive measures. Here are some types of stablecoin that you must get familiar with:
Commodity-Backed
Commodity-backed stablecoins are pegged against industrial and precious metals such as gold, silver, etc. They are lesser prone to inflation and give you the maximum scope of creation of assets without making the whole process hard to adhere to. There are some notable features that make this particular coin a preferable choice for crypto enthusiasts:
The value is firm and it involves multiple commodities, it is also very flexible when it comes to redeemability of the coin.
There is an inclination towards establishing a free-market and it gives leeway for regulated and unregulated firms as well.
The circulating supply of stablecoin is always maintained with the help of the algorithm, it makes the inner mechanism more robust as well.
The conversion of real assets and their scope of redemption get more inclusive with better protocols and standards to follow.
The cost of maintenance is also very low and it brings more storage capacity for the users.
One of the variants of this token is Digix Gold Token (DGX)
Fiat-backed
As the name clearly suggests, this type of currency is backed against a fiat currency that is regulated by a regulated financial entity like a bank or the government. Under this system, the stability of the coin depends on the custodian and more resources are inducted if they are required. They can be traded on crypto exchange platforms and are redeemable by the issuer as well as the recipient. When it comes to managing the cost, you need to include everything which includes activities like auditing, sanctioning of licenses, legal compliance, and infrastructure too. There could be some more costs involved if you try to maintain the standards that the regulators have set. Here are a set of characteristics that make fiat-backed crypto a distinct asset:
The value is determined in a fixed ratio and it also extends to multiple currencies like the Swiss Franc, the Euro, and the US dollar.
When it comes to off-chain transactions, you get a better assurance of payment and there are absolutely no delays because of myriad deposits.
The circulation of coins gets more backing by the stability of the coin and it overcomes all the challenges that other cryptos face in transactions.
Libra, USD Tether, and TrueUSD are the fiat-backed coin in the market right now.
Cryptocurrency-backed
Needless to mention, this one is secured against cryptocurrency and brings a different model for keeping the collaterals in check. It differentiates from the other assets with a more reliable method and sets itself apart from the standard crypto that depends only on smart contracts and timestamps for keeping the blockchain effective. It is a conducive solution when you want to handle several wallets together and want to minimize energy consumption. Using this solution, you can actually tackle a large volume and make certain that nothing is out of control. It decreases the value of coins when you are looking for a potent mechanism for bringing the collateral and liquidation at the same page. Here are its chief attributes:
Another cryptocurrency or portfolio is collateralized for ascertaining its value.
The cost is evaluated by executing smart contracts.
The supply is also regulated by using smart contracts on the chain.
Other than the collateral, but also the incentives and instruments are regulated.
nUSD, HAV, and Havven are the active crypto-backed stablecoins in the market right now.
Advantages of using a Stablecoin
Among the several advantages that we get out of this coin is a reserve asset that holds our precious coin and maintains a balance among the different items it is backed against. It gives you the scope of instant processing and keeps the security aspect foolproof so there is no question of any sort of malfunction. The privacy is intact and you don’t have to worry about the volatility at all because the assets are stable and they give you a chance to deliver more value. It becomes a preferred option for all those token holders who look for a chance to gain traction for their trading.
The preferences of buying and selling can also be changed and you can get more than you expect out of a decentralized mechanism. In order to achieve high performance and more assets, you need to think of all the possible scenarios and this is when you start corralling the derivatives as well. The algorithmic mechanism lets you choose the item that you want to secure as collateral, it also allows you to incorporate more securities that are allowed in any other cryptocurrency. When you need assurance of fast transactions without any impact of efficacy, then stablecoin is the best option you’ve got.
It does not only change the dynamics of trading, but it also gives you the power to dominate the communities. It provides a safer method for keeping the valuation low and you get to indulge in intraday trading as well. In 2019, the crypto market witnessed an exponential rise in the number of crypto users who were inclined to invest in all the variants of this crypto. When it was launched in the month of November, its value was $5,950 and within a month, it shot up to $19,700. It has also helped the traders in embracing a more advanced step that provides foolproof protection to all the coins.
Can it be used for a business like other cryptos?
You cannot just use this coin for business, but you also can achieve a great level of efficacy, transparency, accuracy, and speed with this solution. It emerges as a potent option that does not fail in carrying out all the essential tasks and makes trading more lucrative than ever. Even when you are thinking of launching your ICO or a different token with some service, it becomes a perfect solution. Not only you get to bring some changes, but you also get to bend the rules and make some elbow room for your venture in whichever domain you want. With this particular solution, you can attain a higher level of control without losing the essentials, you also more leverage on the market.
Stablecoin lets you utilize the decentralized architecture to the hilt and gives you peerless performance in every segment. When it comes to dispensing services using crypto and to reach a large number of audience, you require something more convincing. This crypto is the vehicle that helps you achieve this sort of perfect in the operations, it helps you delve into the distributed ledger and make optimum use of the keys. It streamlines the whole process of development and gives you more time to plan the allotment of tokens among the members of the network. From the distribution to crowdfunding, everything gets more inclusive and you get to sort out all the essentials without wasting plenty of time or money.
Conclusion
Coin Developer India is a stablecoin development company that helps you induct this trailblazing solution into your enterprise. We give you all the kinds of stablecoins depending on your requirements and make the adoption of this platform effortless. Our developers and consultants work together to figure out your needs and deliver precisely what you want. We do not make any mistakes in identifying the requisites of your project and work with the expertise to make a perfect product or service.
