Comprehensive overview of STABLECOINS — PART 1.

For those of you who still don’t know, “Stablecoins” as they are called by the greater blockchain community, are crypto coins that are intended to provide measurable stability in a price change. These crypto coins are“designed to be used as a unit of account and even as a store of value.”

Stablecoin is a cryptocurrency with a fixed price.

The price of most cryptocurrencies is determined by the marketplace, where buyers and sellers exchange coins and a price is discovered by supply and demand. In contrast, stablecoins seek to achieve a fixed price, which happens through a variety of means that will be explored in this piece.

How do Stablecoins work?

Typically, most stablecoins are pegged against the USD, but some implementations intend to move over to a basket of currencies or an index such as the CPI (consumer price index) in time. This is in hopes of having a currency independent of fiat in the near future.

There are three categories of approaches to developing a price-stable cryptocurrency:

1. fiat-collateralized

2. crypto-collateralized

3. non-collateralized (essentially an independent, non-collateralized currency maintained by an “algoritham”)

Also, here are a couple meaningful things a stablecoin could enable:

· Increased global access to a stable monetary system

A digital, decentralized currency that is widely accessible and price stable would offer a much needed alternative for people living in countries with unstable monetary systems and restrictive capital controls.

· A currency for financial liabilities and derivatives

One promising use case for cryptocurrencies/blockchains is to serve as theinfrastructure for a modern financial ecosystem with fewer intermediaries, fees, and inaccuracies. For capital markets to form around a cryptocurrency, however, it is a requirement that price levels be fairly stable.

· Mass adoption in real life

One of the primary factors driving merchants away from accepting cryptocurrencies is the volatile price coupled with rising transaction fees. This has caused several mainstream companies to drop bitcoin as a form of payment. In comparison, stablecoins can potentially serve as the backbone of financial applications on the blockchain, especially considering that some of them are compatible with smart contracts.

Dear readers, hope you enjoyed reading the first part of COMPREHENSIVE OVERVIEW OF STABLECOINS. Part 2 is soon to follow! Stay tuned :)