Cryptocurrency is the ocean of multiple tokens, coins, and NFTs in which currency holders invest and trade according to their convenience at any time. Stablecoins are one of the most renowned cryptos in the cryptocurrency market. Stablecoins are coins that are backed with any kind of physical assets.
Stable crypto one of the top cryptocurrencies differentiates from altcoins due to multiple reasons. Furthermore, the stablecoins have risk free advantage over the altcoins. Investors or traders who want to play safe and risk-free avail of the opportunity to invest in stablecoins.
The cryptocurrency market is highly unpredictable and volatile. A layman cannot handle the ups and downs of the market. The investors and traders are afraid of unpredictability so that’s why the opportunity is created to make it predictable and risk-free. In this scenario, stablecoins are created that fulfill the requirement of predictability and risk-free transactions.
Stablecoins are handled and managed by an independent competent authority and are not related to any government institution. They are backed by physical assets and these assets are in the shape of fiat currency, securities, promissory notes, gold, or silver.
The value of stable crypto correlates with the US dollar. They have a ratio of 1:1. A single digital stablecoin is equal to 1 US dollar. Many types of stable cryptocurrency are prevailing in the market, in which USDC and Binance USD is at top of the list. Experts called USDC a digital dollar. In this regard, Kucoin listed stablecoins on its dashboard. You can easily transfer and receive these stablecoins with a couple of clicks from the Kucoin platform. Kucoin prefers stablecoins to trade through its platform and in this regard, Kucoin provides the facility to its users of a free transactional fee.
A digital dollar make numerous benefits for the stablecoin holder. A big advantage, they are liquidated with immediate effect without any delay and people accept them without any hardness. The general public can make cashless transactions with the help of USDC. they don’t need to carry heavy wallets for buying and selling.
The governments are really concerned about stablecoins because they are afraid that people are reluctant to use physical currency irrespective of digital currency. People feel confident to use the digital dollar for the accomplishment of daily tasks.
Three types of tangible or non-tangible assets are used to back the stablecoins.
Backed by a physical asset
The many stablecoins are backed by the physical dollar, gold, or silver. In many cases, the promissory note and treasury bills are used to back the coins. The competent authority has millions and billions of reserves of this type of fiat currency to back the digital dollar.
Crypto-backed stablecoins
Many stable coins are backed by cryptocurrency. In addition to that multiple types of crypto, NFTs and tokens are used as reserves to back the stablecoins. Cryptocurrency has built trust levels in the general public to believe them without any worry. Cryptocurrencies that are used for backing digital assets are established like bitcoin, Ethereum, and other altcoins. Backing the assets in form of crypto has a ratio of 2:1. E.g. if the 2 billion cryptocurrencies are in reserve then the competent authority has the right to issue 1 billion stablecoins in the crypto market.
Algorithm-backed stablecoins
Algorithm-based are interested in strategy and are not backed by any physical or digital assets. These coins are controlled with the algorithm. E.g. when the demand for the coin increases and prices are going to rise, the algorithm spontaneously increases the supply of coins in the market to maintain the balance of demand and supply. In contrast of that when the price is going down and the demand is decreasing then the algorithm takes an action and decreases the supply or buys the coin from the market for stability.
Conclusively, it pertains to the fact that people feel confident, trusted, and easy in using top cryptocurrency in place of fiat currency because they are risk-free, secure, and do not carry heavy wallets. In lieu of that the crypto does not want to threaten physical currency, their sole purpose is to establish a parallel system with the fiat currency to increase the ease of users.