Why are stablecoins important?
andbitcoinandETHUnlike other cryptocurrencies, stablecoins are stable in price relative to other assets. Most cryptocurrencies are prone to price fluctuations, sometimes very violent ones. This may be fine for speculators, who can quickly get in and out of traded currencies for profit, but for certain use cases, such as when there is a need to pay in cryptocurrency during times of high volatility ordiversify your portfolio, price stability is crucial.
Where does the stability of stablecoins come from?
In fact, it is important to realize that no asset is absolutely stable. Whether it's gold, real estate, the U.S. dollar, or bitcoin, price discovery is an ongoing process. However, unlike cryptocurrencies, which are fully exposed to the dictates of the market, stablecoins are designed to absorb reasonable fluctuations while retaining a fixed value. When it comes to real-world applicability, stablecoins are more like strong currencies like the U.S. dollar, but with the advantages of cryptocurrencies.
There are two main types of stablecoins:
Stable currency based on fiat currency collateral
Cryptocurrency-collateralized stablecoins
Stable currency based on fiat currency collateral (with trust)
This type of stablecoin is backed by an equal amount of fiat currency, which is usually held by a central custodian. Take USD stablecoin as an example, you send 1 USD to the custodian, in return, you will get 1 unit of this stablecoin, which is equivalent to the value of 1 USD. Holders of these tokens are then guaranteed to have the option to convert their tokens back into currency at any time. This type of stablecoin includesUSDT(U.S. dollars), GUSD (U.S. dollars), QCAD (Canadian dollars), and EURS (euro). Other stablecoins may be pegged to different assets such asDigiX, one DGX coin is equal to one gram of gold.
Cryptocurrency-collateralized stablecoin (no trust)
There is also a third model for creating stablecoins, which uses smart contract programming to maintain the peg by increasing and decreasing the stablecoin supply in response to market volatility. This model is called non-mortgage model, but it is still somewhat experimental, and the current market share is still very small.
Stablecoin Practical Use Cases
Stablecoin Use Cases
Stablecoins are an important factor driving the adoption of crypto technology. Stablecoins are seen as key to driving crypto mainstream and global acceptance, and there are already a range of use cases.
Cryptocurrencies Designed for Consumption
Stablecoins make it possible for cryptocurrency holders to become crypto consumers. As a form of digital currency, stablecoins are well suited as payment systems for everyday transactions and global commerce. For example, Flexa takes stablecoins seriously and has partnerships with merchants to accept stablecoins for payment. It helps reduce processing costs, reduce fraud losses, and reach entirely new customer segments. The company says the U.S. and Canada already have40,000The point of sale is connected to the Flexa payment service, tapping into the crypto-economy and all the benefits digital currencies have to offer.
for
forcrypto traderGenerally speaking, stablecoins make the exchange between cryptocurrencies and fiat currencies easier, and the cost of realization becomes lower. The reason for this may be to hedge risks, in encrypted assetsextreme volatilityseek protection. Likewise, it gives traders the ability to wait for the perfect moment to add to their positions when buying stablecoins involving crypto as an intermediary currency. This will be a completely different experience than using a direct cryptocurrency service such as a Bitcoin ATM.
Stablecoin diversification
As with any other asset, it's important to have stablecoins spread out across your crypto portfolio. This applies to stablecoins linked to multiple currencies, but even within the same currency system, it is recommended to hold more than one stablecoin.
AAX is a digital asset exchange powered by LSEG Technology. AAX Academy is a user education channel created by AAX, which aims to help more users learn novice tutorials and understand the basics of blockchain.
About AAX Academy
AAX is a digital asset exchange powered by LSEG Technology. AAX Academy is a user education channel created by AAX, which aims to help more users learn novice tutorials and understand the basics of blockchain.
