As the Cryptocurrency industry develops more, new concepts are appearing on the market almost daily. And as the industry is exposed to the general public through these fresh new ideas, questions are continually asked about what is what. Here we answer a few of the questions on Stablecoins.
What Are Stablecoins?
Stablecoins are indeed part of the Cryptocurrency family and they are a certain type of digital asset that is – as the name suggests – more stable because they are pegged to a stable asset. In many cases this is FIAT currencies.
In the last four years, there have been nearly 100 Stablecoins produced with three distinct categories for them: Centralised IOU issuance; Collateral backed; Seigniorage shares. All three have their pluses and minuses.
The Three Options
At the moment, the most notable of the Stablecoins is Tether although it is not performing well recently. At just four years old, Tether has a cap of almost $2.5 billion with every single one of its tokens pegged to one USD. The trouble with Tether is that it needs a centralised authority behind it. This very much goes against the decentralized ethos that is the Cryptocurrency industry.
On the other hand, the collateral backed Stablecoins are decentralized and are therefore very independent. Stablecoins can be supported by a decentralized crypto-asset which is stabilised by the capital that is protected over and above the Stablecoins that are in existence. A prime example of this is Maker which is assisted by Ethereum within an Ethereum smart contract.
The final case is that of Seignorage shares which is not so much of a tried and tested option. This is a high risk choice simply because these Stablecoins are based on a value that they are expected to reach. Not guaranteed to reach but expected. This option is very much dependent on assumption and nothing secure. Basis and Carbon are very good examples of this type of Stablecoin.
That Additional Information
As with everything in the Cryptocurrency industry, Stablecoins do need to develop and grow. They need a bit of space and time to expand and mature at the right pace. Experience and vital information gained over the last few months will set the Stablecoin market in good stead however, time does need to be taken to review, feedback and improve.
There are some very optimistic projects ahead of us including Circle – which is supported by Goldman Sachs. The Stablecoin is pegged to the USD and is one of the few that is regulated. A major plus point for the coin is the fact that Chinese Crypto Mining Hardware company Bitmain has already put $110m into the concept.
Stablecoins do have a long way to go as do many of the concepts in the Cryptocurrency industry. A lot of faith needs to be put into the market to allow it to develop. Hopefully Stablecoins will provide the stability that the general public needs to invest in Cryptocurrencies. Scalability is a concern for all but this will only be proven and adjusted when the time is right.