This post will be in two parts, the part one will focus on The definition, benefits of stable coins while the part two will focus mainly on the characteristics of the backed stable coins.
Stable coins in cryptocurrency word are coins that do not fluctuate in price they are in most cases pegged to the Fiat currency or US dollar, cryptocurrency or precious commodity. These makes their prices relatively stable. Most stable coins have huge reserve to cope up with market shock or demand. Stable coins was occasion by the volatility of cryptocurrency prices and the need to give users something very close to Fiat currencies.
An investor can maximize stablecoin in the following ways:
Stablecoin can be use to store financial assets without it diminishing in value. Unlike other volatile coins like bitcoin and ethereum whose prices fluctuate periodically. In an event when a trader invest in a particular coin and the coin start "bleeding" or lossing value, the trader can easily take solace in stablecoin to avoid further losses until the price stabilies.
One of the major advantages of Fiat currencies over cryptocurrences is the issue of stability. Stable coins seeks to breach that gap by providing an opportunity to have digital currencies that are also stable. This characteristic will further encourage the adoption or increase the adoption of cryptocurrencies in day to day trading.
As mentioned earlier in the introduction stable coins are pegged to various commodity, asset or fiat currencies. The following are some major characteristics:
The major attributes of commodity backed stale coins are as follows:
The worth of the coin is pegged to one, two or more commodities and they can be redeemed for the equivalent on demand. The quantity of the commodity used to back the coin reflect the quantity circulating in the market in form of supply. The fee required to maintain stablecoin is equivalent to the amount needed to maintain the commodity backing the coin.
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