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Stable Coins Explained: Everything You Need To Know

By Soko Directory Team / Published November 30, 2022 | 3:27 pm

KEY POINTS

What determines the value of a currency? Even an academic thesis can be written to answer this question, but the simplest answer is probably the institutions that mint that currency and market conditions. 

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KEY TAKEAWAYS

1 stablecoin will always be equal to 1 USD: if the USD value does not change, the coin price does not change either. Today, although there are many coins that fit this description, the most popular stablecoins are Tether, BitUSD, USD Coin, and True USD.

What is a stablecoin and how does it work?

Gambling can be a very enjoyable and lucrative hobby if you’re lucky enough. It will be even more efficient if you take advantage of a promotion using sites like Bonuses Finder. But casino games or betting aren’t your only options for trying your luck: cryptocurrency investments can also be considered a form of gambling.

“Investing in cryptocurrencies requires taking a huge risk because of their volatility,” says Casino Bonuses Finder product owner Tony Sloterman. “You can win ten times your investment or go bankrupt in seconds: we couldn’t say it’s much different from gambling.” But stablecoins can be a solution to this problem and remove the volatile nature of crypto investments: below, we explain what they are and how they work.

Why are cryptocurrencies volatile?

What determines the value of a currency? Even an academic thesis can be written to answer this question, but the simplest answer is probably the institutions that mint that currency and market conditions. For example, the value of the US dollar is determined by the US Federal Reserve and the global market. Cryptocurrencies, on the other hand, are decentralized, meaning there is no institution minting them. Cryptos are “mined” by their users, and for the same reason, it is the users themselves that determine their value.

For example, buying or selling a particular cryptocurrency in bulk will directly affect its value. Likewise, if users stop mining crypto or start to mine more than ever, the value of the crypto will change. First-generation cryptos are, therefore, highly volatile. For example, the value of Bitcoin can rise or fall within seconds, and the price changes are quite radical.

Of course, there are other factors that affect this volatility, but for what we want to tell here, it is enough to understand that the value of most cryptocurrencies can rise and fall depending on multiple variables. The main reason for this is that there is no single element that determines their value.

Stablecoins are the opposite: they are cryptocurrencies that are tied to a specific asset whose price is usually fixed. In other words, the cryptocurrency has declared that its value will be determined depending on an asset such as USD, gold, oil, and silver before it is released to the market. For example, 1 stablecoin will always be equal to 1 USD: if the USD value does not change, the coin price does not change either. Today, although there are many coins that fit this description, the most popular stablecoins are Tether, BitUSD, USD Coin, and True USD.

Do they defeat the purpose of cryptocurrencies?

When cryptocurrencies first appeared, their aim was to create a financial market that is not controlled by governments and banks. Stablecoins, on the other hand, determine their value according to assets controlled by governments and banks, so we can say that they defeat the purpose of this technology.

But that may not be a bad thing: the first-generation cryptos’ dreamed of a world run by techno-aristocracy, but this is just a fantasy. For this reason, these cryptos have turned into extremely volatile assets: no one uses them as a “currency” anymore. Stablecoins, on the other hand, can at least enable cryptos to spread and be used as a currency. Since they can still offer the features of blockchain technology, they also make a good alternative to securely store your investments: you can convert the money that you don’t want to deposit in banks into stablecoins. They may not be an investment tool, but they can make cryptocurrencies a part of everyday life.

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory
and on Twitter: twitter.com/SokoDirectory

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