Since the creation of bitcoin in 2009, different types of cryptocurrencies such as stablecoins have been appearing, with the aim of responding to the demand of the financial market and the need to minimize the risk of volatility of digital assets that had been created so far.
The stablecoins aims to provide stable prices. Given the high volatility of the crypto market, the idea of these digital assets arises, so that investors can obtain a relative stability in the market and at the same time maintain the advantages and characteristics of cryptocurrencies (transparency, security, privacy), while representing fiat assets such as the dollar, euro or Colombian peso with a certain stability supported in its valuation.
In order to achieve stability in their valuation, stablecoins are generally leveraged by collateralization with another financial asset and thus manage to maintain their value stable in the face of market behavior.
How does a stablecoin work?
For the major part, stablecoins are backed by another asset, but not all of them achieve this backing in the same way. Stablecoins can be backed in the following ways:
Fiduciary-backed stablecoins are a type of cryptocurrency backed 1-to-1 by a traditional currency such as the dollar, euro or Colombian peso. This means that for each token, its value will be guaranteed by one unit in fiat currency.
Crypto-collateralized stablecoins are backed by one or more cryptocurrencies. They are usually decentralized and rely on open software.
Algorithmic stablecoins are digital assets that rely on smart contracts to regulate their stability. The software behind algorithmic stablecoins adjusts the distribution of the cryptocurrency as demand fluctuates.
Related to material values
The value of these coins is linked to that of a real asset, such as gold. The clearest example is Gold Token, which allows obtaining digital assets based on the value of gold and can even be exchanged for this material.
What are the 5 stablecoins that will have the greatest notoriety by 2022?
Originally launched as RealCoin in 2014, it was the first stablecoin. Tether is the largest and most well-known stablecoin in the cryptocurrency market.
USD Coin (USDC)
It was introduced in 2018 by Coinbase, the world's first publicly traded cryptocurrency exchange. USDC is currently the second largest stablecoin by market capitalization.
USD de Binance (BUSD)
This cryptocurrency was launched in 2019 by Binance. BUSD is currently the #3 stablecoin by market cap.
Terra USD (USD)
It is the most popular collateralized stablecoin and the fifth largest overall by market capitalization. DAI is much more technical than other stable currencies. Instead of being backed directly by US dollars like USDT, DAI uses smart contracts to lock in crypto assets like ETH and generate tokens based on that collateral.
The stablecoin market is relatively straightforward and, generally speaking, the top names are the best choice for investing.
Today we find a wide variety of stablecoins, but there are also many others in development. Therefore, it may be difficult to choose the best stablecoin to protect your investment. Regardless of which one you select, be sure to research and study the market well before building your portfolio and buying cryptocurrencies.
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