What are stablecoins, exactly? An expert on the blockchain explains

Stablecoins are a type of cryptocurrency linked to a generally stable asset like the US dollar.

The bulk of the hundreds of stablecoins currently utilizes the dollar as their benchmark asset. Still, several are also tied to other fiat currencies issued by governments, such as the euro and yen.

As a result, unlike popular cryptocurrencies like bitcoin and ethereum, which are subject to sharp ups and downs, the rate of stable coins swings very little.

Tether was the first stablecoin released in 2014, and several other stablecoins have mimicked it.

For each buck deposited, users receive one token, and the symbols can theoretically be turned back into the original money at any moment and a one-to-one conversion rate.

As of July 28, 2021, Tether had a market capitalization of US$ 62 billion, little more than half of the $117 billion market capitalization of all stable cryptocurrencies worldwide. USD Coin is the second-largest cryptocurrency, with over $27 billion market valuation.

The Importance of Stablecoins

Stablecoins were first used to purchase other cryptocurrencies, such as bitcoin because many cryptocurrency exchanges lacked access to traditional banking.

They are more helpful than country-issued money since they can be used worldwide 24 hours a day, seven days a week, without relying on banks. Cash transfers are completed in a matter of seconds.

Another advantage of stablecoins is that they can work with blockchain-based “smart contracts,” which, unlike ordinary agreements, do not require the legal authority to be carried out.

The software’s code immediately specifies the parameters of the contract and how and when money will be transferred. Dollars cannot be programmed in the same manner as stablecoins can.

Smart contracts have led to the use of stablecoins in frictionless trading and financing, repayments, insurance, prediction markets, and decentralized self-governing companies— enterprises that operate with little human intervention.

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