A Detailed Dive Into Stablecoins #001
Hello crypto friends,
With a humble heart, I happily come before you all to discuss on an issue of crucial importance in the cryptospace.
I trust you are doing perfectly fine and are enjoying your activities in the community.
As a crypto investor, we must have heard of the term stablecoin, but for the sake of newbies, i would love to explain it in details.
WHAT IS STABLECOIN
Stablecoin can be explained to be a special type of cryptocurrency that is designed to maintain a stable value by having it pegged to a reserve asset or controlling it's supply through the use of algorithms.
The concept of stablecoins was brought about to provide solutions to the volatility of other cryptocurrencies like bitcoin and ethereum.
The challenge of the volatility of cryptocurrencies made it very difficult for users to accept cryptocurrency as a medium of payment, as a unit of account or as savings.
Inorder to address this issue of price volatility, stablecoin was designed.
Stablecoin was designed in different formats but all with the same aim of decreasing the volatility nature of cryptocurrency.
To fully understand the concept of stablecoins, join me as we discussed more about the types of stablecoins.
TYPES OF STABLECOIN
There are different types of stablecoins in the cryptospace and we shall discuss them little by little.
- FIAT-COLLATERALIZED STABLECOIN:
A Fiat-collateralized stablecoin can be explained to be a type of cryptocurrency that was created to maintain stability in it's price by being backed by reserve asset in the format of traditional fiat currencies.
Every stablecoin in circulation is being backed by an equal amount of reserved assets held in the bank.
For example, if you posses a USD backed stablecoin, the issuer ought to posses an equal amount of USD in his bank account.
Fiat collateralized stablecoin unlike crypto collateralized stablecoin is not being backed by cryptocurrency, rather it is being backed by fiat currencies
CONCLUSION
Stablecoin is very important in the cryptospace as it helps to guarantee stability in the cryptomarket.
With the use of stablecoins, cryptocurrency can be accepted as a unit of account and can also be used as savings.
With this, it has the potential to be widely accepted around the world.
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