Stablecoins are a type of currency linked to assets such as the US dollar that does not change the most appropriate value.
Most of the existing stable currencies currently use the dollar as a benchmark asset, but many are also subject to other fiat currencies issued by governments such as the euro and yen. As a result, the price of stable currencies fluctuates slightly, in contrast to high data currencies such as bitcoin and Ethereum which are prone to sudden fluctuations.
The first stablecoin, created in 2014, was Tether, with many other stablecoins being tracked. Users receive one token for every dollar they deposit. Theoretically, tokens can be converted back to the original currency at any time, and at the individual exchange rate.
As of July 28, 2021, there has been approximately US $ 62 billion in prominent Tether outstanding, or more than half of the $ 117 billion market capitalization of total of all stablecoins worldwide. The next big one is known as USD Coin, with a market capitalization of about $ 27 billion.
Initially, stablecoins were used to buy other cryptocurrencies, such as bitcoin, because much of the digital currency trading did not reach the traditional bank. They are far more valuable than national issued currencies because you can spend them 24 hours a day, seven days a week, anywhere in the world - without relying on banks. The transfer of funds takes seconds to complete.
Another useful feature of stablecoins are that they can work with contracts called smart blockchains, which, unlike conventional contracts, do not require legal authorization to be performed. The code in this software automatically states the terms of the agreement and how and when the money will be transferred. This makes stablecoins organized in ways that dollars cannot be.
Wise contracts have provided the use of stable currency not only for seamless trading but also for lending, payment, insurance, forecasting markets and the private sector - businesses that operate with limited human intervention.
Collectively, these software-based financial services are known as distributed funds, or DeFi.
Sponsors hold that transferring money with stablecoins Are faster, cheaper and easier to integrate with software compared to fiat money.
Some argue that the lack of regulation poses significant risks to financial systems. In a recent paper, economists Gary B. Gorton and Jeffery Zhang compared it to the mid-19th century when banks issued their own private currencies.
They said stablecoins could lead to the same problems that were seen at that time, when there were many runs because people did not agree on the amount of currencies issued privately.
It is feared that stablecoins could pose a threat to the financial system, and regulators have also become more interested in them recently.
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