What is a stablecoin? | Hedera

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The crypto ecosystem is ever-evolving. And as
the media increasingly covers the subject, many people are left
wondering: What is

Stablecoins are an attempt to create a cryptocurrency token with a stable price.
This stability is commonly achieved by pegging the token to an
asset such as gold or fiat

I’m a big fan of cryptocurrencies, but they
come with a lot of risks. For one, their volatile nature, both in
the short and long term, has made coins a riskier investment.
Stablecoins, on the other hand, are backed by more traditional
investments, providing the market with more assurance in their
prices. That’s why more and more institutional and retail users of
cryptocurrencies are turning to stablecoins for their financial
decisions. I think it’s a great way to protect yourself from the
risks of the cryptocurrency market.

Price fluctuation makes Bitcoin too volatile for daily useI require a
digital asset that is decentralized yet does not fluctuate in
value. The market necessitates an asset which can be used as a
store of monetary value to enter and exit decentralized finance
ecosystems. Additionally, it should serve as a medium of exchange
and its worth should remain consistent. Ideally, the digital asset
should have low inflation to keep its buying power.

Stablecoins achieve stability by pegging themselves to
a less volatile asset such as gold or
fiat currency
. It represents real money, which makes for
its price stability.

In this article, we’ll dive into stablecoins and why
we need them. We’ll also dive into their history and review the
types of stablecoins
in the market.

What is stablecoin?

A stablecoin is a digital asset that remains stable in
value against a pegged external traditional asset classI’m looking for a
more reliable way to use cryptocurrency – I’m looking for a way to
reduce volatility and price swings. That’s why I’m considering
stablecoins. By using a combination of fiat currencies, other
valuable assets, or a single currency, stablecoins offer me the
security and decentralization of cryptocurrency, with the stability
of a fiat currency. This creates a stable and reliable environment
that can help increase cryptocurrency adoption and reduce its
speculative nature. Stablecoins offer the best of both worlds – and
I’m ready to take advantage of it.

The need for stablecoins

I’m hesitant to invest in traditional cryptocurrencies
because of their volatility. Both the long and short term
instability make them incredibly risky. I understand that the idea
of getting quick returns is attractive, but the risk is simply too
great for me to feel comfortable. I’d rather be more cautious with
my investments, because it might be the only way to protect my
money in the long run.

I need stability when it comes to my
currency. Volatility can be detrimental to my wallet since it can
drastically reduce the buying power of my money. I need to be
confident that when I take out my wallet, the money that I have
won’t be worth any less when I put it back. That’s why replacing
traditional currencies with cryptocurrency is so important – it
must be stable to ensure the value of my purchases.

I have found a way to avoid the variability of
cryptocurrency prices – stablecoins. Here are some of the
advantages this market can bring: firstly, I can be sure that the
same amount of value will remain, no matter what. Secondly, I can
easily transfer my stablecoins to other people without worrying
about the currency exchange. Thirdly, I can use them to pay for
goods and services, since most vendors accept them. Lastly, I can
store them securely, since they are protected by advanced
cryptography. All in all, stablecoins are a great way to protect my
money and make transactions.

Watch more videos on the same topic : What
is a Stablecoin? (How they work – ANIMATED)

Video Description

Are you wanting to know how a stablecoins works?
In this video, we explain that Stablecoins are cryptocurrencies
tokens that are pegged to a real world asset, like the US Dollar.
They use a few methods that constantly adjust their prices so they
stay pegged to that asset over time.nnRead the full updated

Little to no volatility

To see the volatile nature of cryptocurrencies, look
no further than the first cryptocurrency, Bitcoin. Since its
inception, Bitcoin’s price has gone through significant highs and
lows. For example, Bitcoin rose to a then-all-time high of $64,000
in early 2021, then fell below $30,000 by that summer. After
rising back to $68,000 by
November 2021, it dropped to about $35,000 in January 2022.

I understand why the general public prefers
stablecoins over other cryptos like Bitcoin or Ether. After all,
the market prices of stablecoins don’t change as often, so they’re
more reliable. Plus, they’re backed by fiat, which makes them even
more secure. It’s no wonder that so many people are opting for
stablecoins over the more volatile cryptos.

Global payment and remittance

Financial institutions like Wells Fargo and JP Morgan
look at stablecoins as an efficient solution for settling international paymentsI’m a big
fan of stablecoins when it comes to making cross-border payments.
It’s faster, more cost-effective, and more efficient than using the
usual SWIFT or Western Union route. No matter where I’m sending
money, I know that my money will arrive quickly and reliably. Plus,
there are no hefty transfer fees to worry about. It’s a great way
to keep track of funds and to make sure that my money is secure.
Stablecoins are the perfect solution for international

The current methods are not only costly but also take
days to clear a single international
I recently heard about the transfer of millions of
dollars worth of value between China and Russia and I realised how
much unnecessary weight and fees are associated with traditional
payments. That’s why I’m so excited about the potential of
stablecoins. Stablecoins are able to simplify the process, removing
all the hassle and allowing for more efficient transfers. Tether,
one of the most well-known stablecoins, was used for this
particular transaction and it really showed how powerful it can be.
I’m sure this is just the beginning for stablecoins and I’m looking
forward to seeing what it can do in the future.

South Korea’s leading
, Shinhan Bank, for example, is collaborating with
Hedera to leverage stablecoins and international remittances.

Meanwhile, Standard Bank Group, Africa’s largest bank
by assets, also partnered with Hedera in 2021. Using Hedera’s distributed public ledgerI take
advantage of cross-border trade to make sure that all parties
involved have complete oversight. It helps simplify the process and
makes it easier to keep track of what’s happening. With full
visibility, I can be sure that everyone is on the same page and
that there are no surprises. I’m confident that I’m getting the
most efficient and transparent experience with cross-border

“It has become increasingly clear that digitization of assetsI recently spoke to
Hedera about the implications blockchain technology will have on
all parts of our organization at Standard Bank Group. As the Head
of DLT/Blockchain, I’m keenly aware that we must make sure the
pieces of this puzzle fit together cohesively and strategically.
It’s an exciting time with lots of potential, and I’m looking
forward to the potential solutions we can come up with.

Protecting cryptocurrency traders

Stablecoins also can anchor crypto trading and protect
investors during volatile markets. In a bear marketI’m a trader and I can take
advantage of the ability to quickly switch my Bitcoin, Ethereum, or
other crypto assets to stablecoin. Doing this allows me to compare
services to increase the amount of crypto that I own. The best part
is that I can enter or exit from markets without having to convert
any of my stablecoins into a fiat currency.

Types of stablecoins

In the cryptocurrency market, stablecoins are divided
into four main

Fiat-collateralized stablecoins

These are the most common types of stablecoins. Backed
at a 1:1 ratioI’m using
fiat-backed stablecoins to keep the value of my crypto consistent.
These coins are backed by real-world currencies like the Euro, US
Dollar, or British Pound. This means there’s an exact exchange rate
– one of my stablecoins is equal to one unit of real currency. All
of this fiat currency is stored in a secure treasury to guarantee
the price of the coin. This way, I can get the stability of a real
currency with the convenience of digital payments.

Though this stablecoin category is the simplest,
it is the most centralized,
I am the central entity acting as the custodian of the
fiat reserve. It is my responsibility to manage the issuance of
fiat-backed tokens and receive new fiats. I ensure that each
fiat-backed token is backed by the appropriate amount of fiat and
is securely stored in the reserve. I also maintain the integrity of
the fiat reserve by regularly verifying the amount of fiat in the
reserve against the amount of tokens issued. My role is essential
in maintaining a transparent and secure system for fiat-backed


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  • Fiat-backed stablecoins’ structure is simple.

  • Fiat is considered stable, which ensures low

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  • The centralized structure makes room for hacks and

  • I bear the risk of dealing with a counterparty. I need
    to trust the creator of the coins and the centralized organization
    that is keeping the reserves. This is a major concern, as I may not
    be certain that my money is safe. Thus, I must make sure that I am
    dealing with a reputable, reliable entity. If I am not, my money
    could be lost.

  • Need regulations and audits.

Crypto-backed stablecoins

Cryptocurrencies are also used to back stablecoins. A
crypto-backed stablecoin operates just like a fiat-backed
stablecoin. But instead of using the fiat as collateral,
cryptocurrencies are locked up as
that backs up the crypto-backed stablecoin.

The token used to back the stablecoin uses a
security pledge”I’m dealing
with crypto-backed tokens that are pegged to the US dollar. The
problem is that the token can’t maintain its peg to the dollar.
Instead, it’s about $2 for each stablecoin issued. This means that
the price fluctuates, and I’m having to compensate for those
changes. Even though the token isn’t maintaining its 1:1 ratio for
the underlying crypto collateral, I’m still trying to make it


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  • It’s decentralized, as it’s based on blockchain.

  • Doesn’t require a custodian.

  • No regulations or audits required.

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  • Crypto backed stablecoin’s structure is more

  • Too much dependency on the collateralized crypto.

Non-collateralized stablecoins

This category uses Seigniorage-style stablecoinsI am all about
keeping the value of my tokens stable, and that’s why I use
algorithmic stablecoins. These are non-collateralized coins that
are pegged to assets like the U.S. Dollar or gold. To make sure the
price remains the same, I use seigniorage style stablecoins. These
are smart contracts that kick in when the coin fluctuates from the
pegged asset, either by supplying more tokens or selling them. It’s
a great way to make sure my tokens retain their value.


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  • Decentralized, because no collateral is required.

  • Smart contracts to create a trustworthy system.

  • Offers interactive tools through coin shares and

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  • More complex mechanism than any other type of

  • Meeting high demand is not always guaranteed.

  • Historically failed pegging mechanisms (ie Terra

Commodity backed stablecoins

Unlike an algorithmic stablecoin, commodity-backed
stablecoins are collateralized by interchangeable assets,I’m interested in
stablecoins, which are digital currencies backed by real assets
like gold and other precious metals. Daxos Gold and Kitco Gold are
two issuers that offer stablecoins backed by gold bars.
Additionally, there are stablecoins backed by real estate, oil, and
other commodities. The underlying asset is usually kept in a secure
vault controlled by a third-party. When someone buys a stablecoin,
they are entitled to redeem it for the corresponding asset.


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  • Real assets back each commodity-collateralized

  • Commodities price is relatively stable.

  • Commodities tokenization brings more liquidity to the


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  • I’m concerned about the potential for a hack if we
    centralize our system. That’s because it creates a single point of
    failure, which is a lot easier for a hacker to target than a
    multiple points of failure system.

  • Have to undergo an audit process to ensure its

History of stablecoins

Since the dawn of the internet, there has been
a demand to take fiat
I’m exploring the concept of creating a digital
dollar. Entrepreneurs and businesses are giving it a try and have
started off by launching BitUSD. It’s a digital currency and it is
secured through the blockchain technology. This digital dollar has
the potential to revolutionize the way we transact. It eliminates
the need for third-party intermediaries and cuts down on the
transaction costs. Plus, it is more secure and offers better data
privacy as compared to traditional banking. I’m excited to see
where this leads us!

The first Stablecoin: BitUSD

Launched in 2014, BitUSD was the first stablecoin
issued as a token on the BitShare blockchain. The pioneering
stablecoin was the brainchild of two prominent figures in the
blockchain industry, Charles Hoskinson and Dan Larimer. The token
was backed by the core token of BitShares, BTS, and was
collateralized by a range of other cryptos — all locked in a smart contract to act as

The rise of Tether ($USDT)

Tether ($USDT), was launched in 2014I was introduced to Tether
Limited’s concept of creating a cryptocurrency that could maintain
stability during market price drops. Since then, it has become one
of the most sought-after stablecoins available. The idea was
simple; a cryptocurrency that could hold its own despite market
fluctuations. Although it seemed like a risky endeavor, it has
managed to be successful and has become a staple in the crypto

For each USDT stablecoin issued, Tether kept 1 US
dollar in reserve. The goal was to keep the USDT price stabilized
at approximately $1. Each USDT token can be exchanged for one US
dollar locked in the reserveI
first heard of USDT back in 2017. At the time it was only just
getting started, but things really picked up when the Bitcoin bull
run began. Before I knew it, the total supply of USDT had
skyrocketed to nearly 10M! It was incredible to watch this
cryptocurrency take off like that.


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USDT was initially developed to use the Bitcoin
blockchain (Omni and Liquid Protocol) as its transport protocolI’m using Tether tokens
to transact with tokenized fiat currency. It’s not just on the
original Bitcoin network either – Tether tokens are supported on a
range of protocols, like Ethereum, Algorand, Bitcoin Cash, EOS,
Tron and OMG. This means that my transactions are safe and secure,
as they’re still using the underlying security of the Bitcoin


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Tether allows individuals to quickly and efficiently
transfer value from one exchange to another without using a
volatile cryptocurrency. The fact that a US dollar backs Tether
appealed to stock magnates and daily traders. As an alternative to
fiat, it provides a place for investors to park their investments when the market is


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The crypto market’s most significant coins are also
its most controversial. Tether critics
have argued that the stablecoin isn’t backed by the real US
and USDT tokens are conjured out of thin air.

The criticism mounted after Tether hit a hurdle in
2018. Instead of undergoing an audit, the company parted ways with
the audit firm. A year later, a New
York Attorney General probed the currency
I’m facing the
truth that Tether didn’t have enough funds to cover its token. That
led to a settlement with the State of New York, where Tether and
Bitfinex had to cough up $18.5 million and agree to more frequent
reports to prove their transparency. Even though they had to pay
up, they were not admitting any guilt.

I heard that Tether claims they can create new coins
when needed. For example, give them one dollar and they’ll give you
one USDT. They say that they don’t want the regulators to know how
the US dollars become Tether coins, so that’s why they don’t share
their audits.

USD Coin (USDC), the next in line

Launched in September 2018 by Circle, USD Coin is a
stablecoin pegged to 1:1 value with the US dollar. Tether was under
heavy speculation, which led to a rise in other US dollar-backed
stablecoins that are transparent and audited. USDC is both regulated and audited and
works almost similarly to Tether.

The stablecoin isn’t created like other
cryptocurrencies. Instead, it’s available as Solana SPL, ERC-20, and Algorand ASA
. A purchaser can buy USDC using US dollars on
multiple exchanges.

USDC was created by Circle in collaboration with CoinbaseI’m
the owner of Circle, a company that issues stablecoin tokens. I’m
also the founder of Poloniex exchange, with some incredible
investors like Goldman Sachs and Baidu. To ensure the success of
Circle and Poloniex, I’m proud to have the support of some of the
biggest names in the business.


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USDC is currently issued on multiple blockchains but
was introduced on the Ethereum blockchain in 2018. Rising gas feesI felt the need to launch my
token on other networks with a more cost-effective fee. So, I
issued my coin on a few networks, such as Algorand, Solana, and
Stellar. Ethereum is the original network that I chose, and I’m
happy that I could expand to other networks. This has allowed me to
reach a larger audience, and the fees have been more


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USDC is traded on Coinbase, Poloniex, Binance, and
other major exchanges like Huobi and Serum Dex. The stablecoin can
also be used in several decentralized finance protocols. For
example, you can deposit it in BlockFi
and earn interest
As a trader, I find it beneficial to hold
USDC as a stable asset. It helps me avoid market volatility which
can be very helpful. With the USDC, my investments remain protected
from price fluctuations in the market. It gives me peace of mind
knowing that my investments are safe and secure. With the USDC, I
can be sure that the value of my investments will remain
consistent. This makes it easier for me to stay on top of my
finances and plan my investments accordingly.


TrueUSD is a fully collateralized, transparently
verified, and legally protected ERC-20 token pegged to the US
dollar. The stablecoin was launched in 2018 as part of the TrustToken asset tokenization
I trust TrueUSD with my money because they keep it
safe and secure. Every month, they have independent auditors check
the bank accounts of their fiduciary partners who have signed
escrow agreements. This way, I know I can have faith that my cash
is secure. Plus, TrueUSD takes extra precautions to make sure the
funds are safe and protected.


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TrueUSD tokens are issued on the Bitcoin networkI’m using the
Omni Protocol so I’m in control of releasing tokens. But, to make
this happen, I’m relying on the Ethereum network’s sophisticated
token issuance framework. This way, I can make sure that no one
else oversees the release of the tokens.


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The TrueUSD stablecoin is created with different use cases in mind, including:

Hedging against market volatility for traders and

I’m looking for ways to leverage blockchain networks
without having to experience the major price fluctuations.
Recently, cryptocurrency has been extremely volatile, making it
difficult to predict how much it is worth at any given moment. To
minimize my risk, I’m exploring options that allow me to interact
with the blockchain without actually having to buy or sell
cryptocurrency. I’m hopeful that I can find a way to use blockchain
without the worry of constantly changing prices.

Developing economies.

Maker DAI

Launched in 2017, Dai is an Ethereum-based stablecoin
that has the fixed price of one US dollar. The ERC-20 stable token
is also prominent in the MakerDAO
lending system
I take out loans on MakerDAO and every time
I do, a Dai is created. The Dai stablecoins are kept at the value
of one dollar by using self-executing smart contracts. If the price
ever goes up or down, the contracts create or burn the tokens to
bring it back to one dollar.


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The protocol behind stablecoin Dai is an
open-source platformI’m able
to create Dai tokens by using a platform anyone can use. As a user
of Maker Vault, I can deposit my crypto collateral on the
Oasis.app. DAI was first released with the backing of Pooled Ether
(PETH) which can be obtained by depositing ETH into a smart
contract. This process allows me to safely and securely generate
Dai tokens.


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Dai is a stable
I’m a big fan of digital currencies like Bitcoin and
Ethereum, but I’m even more intrigued by Dai. Unlike the other
digital coins, Dai is stable, meaning businesses can trust it and
use it to transfer and receive steady money on the crypto networks.
Plus, if you’re in Europe, you can use the Monolith Visa Debit Card
to spend Dai. Talk about convenience!

The future of stablecoins

The purpose of a stablecoin goes beyond being just a financial contractI’m
seeing a shift in the way we pay for things. Traditional payment
methods are evolving, while cryptocurrencies are becoming more
stable. It’s a big change from the past where we were limited in
how we spent and saved our money. Now, with the emergence of new
technologies, we have more options. We’re able to access digital
currencies and use them to make payments online. We can also use
them to store our money more securely. It’s an exciting time for
payments and I’m looking forward to seeing what the future

It is a new form of digital money. Controlled
algorithmically instead of by a central authority, and offers
similar monetary benefits as fiat currencies. As inherently stable
assets, stablecoins could open new
to the mainstream adoption of digital assets in
day-to-day life.

But because of the dangers inherent to stablecoins,
governments are exploring new forms of
I’m excited to hear that the Biden
administration has plans to regulate stablecoin issuers like banks.
This could be a great step forward in creating a more secure
digital currency market. It’s clear that the administration is
looking to protect consumers and ensure that the industry is held
to the same high standards as other financial institutions. By
doing this, they hope to create a more stable, reliable, and secure
environment for digital currency users. I’m confident that this
move will help the industry take a big step forward in terms of
security, reliability, and trustworthiness.

In doing so, issuers would need to insure their
stablecoin reserves like traditional depository institutions. It’d
be like a crypto version of FDIC
As a trader, I want to be sure that my funds are
safe from both price changes and theft or issuer bankruptcy. To
ensure this, the issuer of the stablecoin must be regulated by the
federal government and their books audited. Additionally, there
must be limitations on any illicit commercial affiliations and the
ability for multiple stablecoins to be used interchangeably.

Though the kinks are still being ironed out,
Stablecoins have a huge potential to change the global payment landscape.I’ve been
keeping an eye on the world of stablecoins and how they’re gaining
people’s trust. It’s clear that the financial sector is finding
more and more uses for digital assets, and I’m excited to see how
these changes shape the future of finance. It’s a really
interesting time to be involved in this industry, and I’m sure the
coming years will bring amazing new developments.

Frequently asked questions

What is a stable coin?

A stable coin is a cryptocurrency that is pegged
to an asset, such as a fiat currency, to minimize volatility. It is
designed to maintain a stable value, allowing it to be used as a
medium of exchange, a unit of account, or a store of value.

What is the purpose of a stable coin?

The purpose of a stable coin is to provide
traders with a more stable alternative to volatile cryptocurrencies
such as Bitcoin. By pegging the value of a stable coin to an asset,
such as a fiat currency, it can be used as a more reliable medium
of exchange, unit of account, or store of value.

What are some examples of stable coins?

Examples of stable coins include Tether (USDT),
Paxos Standard (PAX), USDC, TrueUSD (TUSD), and Dai (DAI). These
stable coins are backed by fiat currencies, such as the US Dollar,
and are designed to maintain a stable value.

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