What is Stablecoin (Stable Cryptocurrency)?

WHAT IS A STABLE COIN?

      Stable-stable money are digital assets whose value varies depending on traditional currencies such as dollar, euro, Turkish lira. This feature allows it to be transferred quickly and cheaply all over the world without any change in price.

Cryptocurrencies like Bitcoin and Ethereum are highly volatile against fiat currencies, making them notorious. Although cryptocurrencies are rapidly becoming widespread, blockchain, which is a relatively new technology, cannot prevent the crypto money market from being small.

As a medium of exchange, cryptocurrencies provide an excellent technological perspective. However, the rapid change in their value puts cryptocurrencies in the risky investment category and makes them an un-ideal payment instrument. This is caused by the rapid change in value between delivery and transaction.

But stable cryptocurrencies do not have such a problem. Price movements are negligible and move almost exactly with the value of the underlying asset. For this reason, stable cryptocurrencies function as a safe haven in volatile markets.

Stable Cryptocurrencies Based on Cryptocurrency

       Cryptocurrency-based stablecoins must be collateralized with a base different cryptocurrency. The new money issued is a type of cryptocurrency created by smart contracts. Since these projects are created through a blockchain network, the problem of trust is provided through the blockchain protocol. Investors are influenced by the votes and decisions of all participants in the network, rather than by a single issuer. In order to obtain such stable cryptocurrencies, users lock their cryptocurrencies into a contract, against which the token is issued. They then return the issued stablecoin to redeem their cryptocurrencies. Various algorithms are used to keep the price stable, and some game theory is hidden in it.

Algorithmic Stable Cryptocurrencies

       Algorithmically stable cryptocurrencies are not based on a fiat or cryptocurrency. They are based entirely on algorithm and smart contract-managed token supply. Just as central banks manage their national currencies with monetary policy, stable cryptocurrencies that are issued are managed. For example, if its price drops, its supply automatically decreases. If the price increases, the supply also increases. Thus, the value of stable crypto money is tried to be maintained with the circulating money supply.

Although these cryptocurrencies seem unsecured, this perception is wrong. Some collateral is available to combat unusual market movements. Against black swan cases this is a need

 

Advantages-Disadvantages of Stable Cryptocurrencies

      The main advantage of stable cryptocurrencies is that they are an important intermediary in the exchange of cryptocurrencies. They serve as a good payment instrument in the face of high volatility. They solve this problem in cryptocurrencies by providing predictability and price stability.

By solving the volatility problem, stablecoins act as a bridge between other cryptocurrencies and traditional financial markets. The level of interaction, which is normally very low, increases with this form of digital money and increases the possibility of using cryptocurrencies for loan and deposit purposes. In fact, stable cryptocurrencies issued by the state have begun to be talked about today.

Besides its usefulness in financial transactions, stable cryptocurrencies can also be used by traders and investors to hedge their portfolios. Investors who hold some stable cryptocurrencies in their portfolio reduce their overall risk. It is recommended to have a certain amount of stability money in a good crypto money portfolio.

Stable cryptocurrencies still have some limitations against common usage areas in the cryptocurrency market. Coins collateralized are less centralized than other cryptocurrencies and need a centralized body to back the asset. In terms of crypto collateralized and unsecured coins, users need a large community and robust codes for the reliability of the system. As there are new technologies, they need to mature.

Despite some disadvantages, stable cryptocurrencies are one of the critical components of the cryptocurrency market. By design, it keeps prices more or less stable, and besides being used only as a medium of exchange, it also creates a safe haven for investors and traders.

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