What Is Stablecoin? Why We Need It?

The crypto is magnificent for being another option of private money concept. We know the crypto has the future, however, we do not know the way it will modify. The most popular opinion is that the crypto is going to replace or become an alternative of fiat currencies just because cryptos execute some of the functions that fiat has now.
Is crypto an investment asset today? Certainly. The majority of currencies are traded on the numerous crypto exchanges. We already know about traders that deal only with crypto assets.

Is crypto a payment tool today? It is in theory. In practice very few people use bitcoins or altcoins to pay for goods and services on a constant basis. Due to the fact that the crypto is characterized by high volatility, it is rather hard to consider them as payment meansif the price of the coin can change dramatically in less than a month.

However, now Stablecoins appear on the scene.

Stablecoin - is a decentralized coin bounded to fiat currency, commodity, or another cryptocurrency. Despite the value of classic crypto which is defined by the market, the stablecoin price is usually the same and its value depends on the value of the bounded asset.

For example, if you have bounded stablecoin to USD, the value of each single coin changes together with the value of USD. The same can be told about any other asset. This factor defines the next differences of stablecoins from the cryptocurrency:

  • stablecoins always have the mechanism of price control - it could be the reserve fund or an algorithm making coin stable;

  • the stablecoin issuer provides its withdrawal - if a coin is bounded to USD you can exchange it on USD, if it is bounded to gold you can get real piece of gold for the coins.
As you can see it is not the same decentralized currency we've got used to. When it comes to stablecoin, there is always a controlling body executing central bank functions.

Why Do We Need Stablecoin?

It seems like having a central bank function for the crypto violates the principles declared for cryptocurrencies. However, this function is necessary to keep coin's value on the same level no matter what.

The fact that stablecoin volatility is usually low (if it is not bounded to crypto) lets all the people in the world use it as payment mean now.

For example, one of the most popular Stablecoins is Tether (USDT). Despite of the controversy around this crypto, Tether is properly functioning for 4 years, and its capitalization has raised till more than 2 billion USD.

How Stablecoin Can Help The World Accept Crypto?

The stablecoin is ideal for making payments which is a huge advantage comparing with the classic coin. If you buy 1 BTC you probably will constantly check the exchange rate to find out the change of its price. However, if you buy 1000 stablecoins you can be sure that its price remains stable.

Disclaimer! It is only applicable to stablecoins bounded to stable assets like gold, USD, EUR. In case the coin is bounded to crypto its value will change as much as the price of the asset it is bounded to.
This means that people who need an alternative payment mean can consider using stablecoin as an alternative to fiat currencies.

Even the conservative financial institutes have recognized advantages of stablecoin. For example, JPMorgan issued JPM coin stablecoin.

Also one of the largest Japanese banks Mitsubishi UFJ Financial Group (MUFG) announced development of stablecoin.

When Stablecoin Will Become Outdated?

One of the reasons of stablecoin creation is the fact that the world have not accepted the crypto yet and crypto's high volatility. Once the crypto price stabilizes and the majority of countries accept cryptocurrencies there will be no need in stablecoins anymore.

The later it happens, the more new stablecoin projects will be created.

Conclusion

Stablecoin is the product of transition phase which is very useful today, however, it is unlikely to be popular asset in the future. On the other hand, it will allow us to create conditions for faster and seamless acception of cryptocurrencies.
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