, 3 years ago

What are Stablecoins?

Cryptocurrencies are highly volatile, which offers great opportunities for trading. Still, sometimes you would like to preserve the value and don’t want to risk any up-or downside. What are stablecoins and what do they have to offer?

Transferring value

Stablecoins offer a lot more options then regular currencies. They can be stored and transferred peer-to-peer just like regular crypto. At the same time, they represent the stable value of the underlying asset. For one instance, one USDT is backed by one real US-Dollar held by the company Tether.

But there are also different and decentralized stablecoins that don’t require a trusted third party. Maker DAO and the stablecoin DAI is such an example, but also Heaven Protocol and its assets like xUSD, xGold or xSilver.

These examples show that the underlying assets doesn’t have to be necessarily a fiat currency, but can also be a commodity as well. Aside from these qualities most stablecoins share the following features:

  • They don’t run on their own blockchain
  • In this sense they are tokens and not coins
  • These tokens apply to different standards, meaning they can be issued on different blockchains
  • They can represent a tokenized version of fiat currencies, crypto and commodities

Use cases

With these features stablecoins are most suitable to settle payments without risking any loses due to volatility. They also have a very important role in decentralized finance applications, since they can represent different assets.

This way it is possible to use Bitcoin with a stablecoin like WBTC and lock it into a liquidity pool for yield farming, for instance. It allows to hold BTC, while at the same time interacting with the Ethereum blockchain and one of its many DeFi protocols.

Another option is to use stablecoins for trading, because they represent the value of the US-Dollar or Euro. They become faster available to traders than a traditional wire transaction.

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