23 octubre, 2018 0

What does stablecoin mean in the cryptoworld?

What does stablecoin mean in the cryptoworld?

We all know the base of a cryptos price and value: supply, demand and usability. This causes that price and value to be volatile, being that these factors can vary in the short term. However, within the world of cryptocurrencies a new way of establishing the price and value of tokens has attracted attention, in the eternal quest to stabilize and maintain their price. Thus, the stablecoin were born. In this article, we’ll explain a little about what these coins are. We hope it helps.

What does stablecoin mean in the cryptoworld?

Concept

We understand by stablecoin or stable currency those digital currencies of cryptographic character (cryptocurrencies) that are linked to the value of an asset. That is, the value of these cryptocurrencies remain stable in relation to the asset that supports them.

These assets can be a fiduciary currency (dollar, euro, pound, among others), elements such as gold, silver, oil, real estate, even other cryptocurrencies. Normally, the creators of this type of currency choose a linked asset that is relatively stable in terms of its value. This to maintain a stability in the price of the cryptocurrency.

How its price is maintained?

These cryptocurrencies, which many prefer to call token and not crypto, have established certain strategies in order to keep their price stability as much as possible. Thus, depending on the type of asset they use, the strategy to maintain the price is different.

In the case of currencies that support fiat currencies, it’s established that each currency has the same proportion as the currency that backs it (1: 1). So, for each currency you own, you’ll have a guaranteed value for a fiat currency, usually dollar, which is in reserve.

Now, in the case of coins backed by elements such as gold, an equivalent proportion of the element is given to the currency (1: 1), with 1 gram equal to 1 token unit. This gold is likewise held in bullion as a reserve.

Some of these currencies are supported by other cryptos, with the aim of letting go of the centralization of fiat. In this case, a double backup is given to the token by another cryptoactive (1: 2).

Stablecoin examples

Even though many believe they don’t know about this type of cryptos, there are many in the market. Perhaps the best known is currently Tether, a token based on the Bitcoin Blockchain and backed in dollars, euros and soon yen. Another example is Digix Gold, backed by gold, and TrueUSD, also backed by fiat currency. An example of currencies supported by cryptoactives is DAI, which is supported by Ether.

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