What are stablecoins?
Friends who have been exposed to the blockchain in the early days will encounter this question, what is a stable currency. A stablecoin is a special type of cryptocurrency that can maintain a specific exchange rate with its anchor target (US dollar, gold, etc.). At present, there are more than 200 stablecoins in the entire cryptocurrency market, but the current stablecoins with larger market value and higher acceptance are USDT, PAX, USDC, GUSD, TUSD, DAI, etc.
Why do stablecoins appear in the crypto market? On the one hand, it is difficult for investors to measure returns when investing in cryptocurrencies. In most cases, they can only be priced in fiat currency. With the closure of the fiat currency channel, the market urgently needs tools for stable pricing. On the other hand, cryptocurrencies are difficult to be widely adopted as a store of value due to their high volatility. Some decentralized applications require reduced volatility of cryptocurrencies in order to function. Based on the above reasons, stablecoins came into being. With the stable currency, investors can use the stable currency to denominate transactions, measure the income, and use the stable currency to avoid risks and retain the income. In addition, some game DAPPs can also be priced through stable coins to facilitate dissemination.
A large number of stablecoins can basically be divided into three categories. One is a stablecoin anchored to legal currency (US dollar, euro, etc.) or items (gold, silver, etc.). The centralized institution reserves the same amount of legal currency and issues the same number of stablecoins anchored 1:1, representing USDT and USDC , GUSD, TUSD, etc. The second is to mortgage encrypted assets (BTC, ETH) to generate stable coins. Decentralized institutions can only generate stable coins through contract mortgage encrypted assets. The encrypted assets are locked in smart contracts. Representatives include MakerDAO, Steem and Alchemint. The third is algorithmic stablecoins, that is, institutions such as decentralized banks use algorithms to generate stablecoins and maintain exchange rate stability. Representatives include Terra, Ampleforth and Element Zero. The current development practice shows that the market for the third algorithmic stable currency is not popular.
