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What is a Stablecoin?

Categories: EducationalPublished On: July 12th, 20212.4 min read

The cryptocurrency world can be a volatile place, full of value which can change at the drop of a hat. This is why the business world is starting to turn to a new version of cryptocurrency that is more stable, and these tokens are called stablecoins.

What is a Stablecoin?

A stablecoin is a cryptocurrency, however, instead of having a value which is based on demand, stablecoins are pegged, or matched to an asset that has value in the real world. This reduces their volatility and makes them a much safer store of value than cryptocurrencies like Bitcoin. 

Why are Stablecoins Important?

As the world continues to digitize, and a new global economy begins to emerge, it becomes increasingly more important to have a way to transfer funds that are digital. Not only that, but as the world becomes borderless, people need a borderless currency, and one that they can use for transactions any time, day or night, without having to worry about adhering to banking hours. 

Stablecoins meet all of these needs, as they are a digital store of value which can be sent anywhere in the world almost instantly, around the clock. And they do so inexpensively, bypassing the massive bank fees which oftentimes accompany large international transfers. Stablecoins are also easy to program to suit a business’s individual needs. 

How Do Stablecoins Work?

Stablecoins are built on blockchain technology, and they are usually built on top of an already existing blockchain. Most stablecoins currently on the market are built on the Ethereum blockchain. Stablecoins are given a monetary value based on whatever asset is backing them. For example, a stablecoin backed by the US dollar on a 1:1 ratio would have tokens which are worth $1.

What ‘Assets’ Can Back a Stablecoin?

The most common asset used to back stablecoins is a fiat currency such as the US dollar or the Euro, but of course these aren’t the only assets able to be used. There are currently stablecoins on the market backed by precious metals such as gold and silver. And there are companies who are working to bring assets such as real estate to the stablecoin market, that would mean there will someday be stablecoins out there backed by houses. The point is, any asset with value can be used to back a stablecoin. 

If you think a stablecoin could help you revolutionize your industry, or take your company to new heights, Stably can help get you started! Contact us at Stably.io/contact/ to get started. 

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