The financial sector does not stand still. The day-to-day operations and need to facilitate them move the financial mechanisms ahead of time. Nowadays, financial software development solutions make the financial industry more attractive to customers and engage new market players.
Geniusee provides clients with various FinTech services and solutions with individual approaches. Our developers have extensive experience and profound expertise to ensure high-quality assistance. Today we are pleased to share our knowledge about stablecoins, unique digital assets, and their differences from traditional cryptocurrencies.
What Are Stablecoins?
Stablecoins came into being in 2014 during the financial sector’s digital transformation processes. Stablecoins are linked to various assets, including fiat currencies, precious metals, financial instruments, and digital currency, in order to achieve stability against fluctuations in the crypto exchange rate. They can also replicate some aspects of central bank monetary policy on a decentralized basis (the concept of Seigniorage Shares). Stablecoins are intended to be an alternative to the high volatility of most common cryptocurrencies, including bitcoin (BTC), which has made crypto investments less suitable for conventional transactions.
Stablecoins are based on the blockchain and enable the benefits of virtual currencies (cheap transaction costs, quick payments, anonymity, etc.). They do not have the significant disadvantage of excessive volatility.
The Main Benefits of Stablecoins
- It is impossible to block funds due to the decentralized form of transactions (through blockchain);
- accessibility and the absence of usage-related geographic restrictions;
- minimal volatility of the currency market because of stabilizing techniques;
- lower commission for payment transactions since there are no middlemen represented by banks;
- strong network stability for peer-to-peer systems;
- high confidentiality level;
- simple to use.
How Do Stablecoins Work?
The principle of using digital coins is the same as physical money.
The stablecoins value is almost always equal to assets in a ratio of 1:1. It helps you save money to handle settlements or exchanges. Stablecoins that are linked to other cryptocurrencies may depend on one or more systems. It isn’t easy to compare their stability with the way fiat digital coins are secured. However, the ability to easily liquidate the currency and decentralization remains the main advantages of stablecoins.
They are distinguished by decentralization and are not restricted to collateral obligations. Issuers provide rate control by using smart contracts. Sometimes they resort to increasing or decreasing the issue of coins as additional regulation.
How To Buy Stablecoins?
Most exchanges and exchangers can support you with the purchase of a stablecoin. The common methods are the exchange through Binance, Coinbase, and other similar platforms. Binance has recently added support for fiat currencies, allowing you to buy cryptocurrencies directly from your card through the partners that process fiat payments. Cryptocurrency goes to the balance of the exchange. Coinbase is a more secure way to buy USDT for U.S. dollars. In addition, the platform provides the safe storage of cryptocurrency in a personal account and is available for U.S. citizens.
Difference From Traditional Cryptocurrencies
Stablecoins have a more stable nature than the traditional crypto ecosystem. Because they are assumed to be backed by fiat currency, investors can be confident that their tokens will always sell for one dollar apiece. This means that prices won’t go down: coin rates are determined by faith, so if investors are confident their stablecoins are worth and secured by one dollar each, the price can reflect that.
Stablecoins are a reliable instrument for risk-averse investors. Most exchanges, including the world’s largest, Binance, do not enable traders to acquire fiat currency but allow them to buy and sell cryptocurrencies. This explains that, from time to time, it might be challenging for investors to cash their cryptocurrency holdings. In some cases, they have to go through several exchanges or even wait a few days to make a transfer successfully.
This is why stablecoins are preferable. They are cryptocurrencies by nature and are placed on most exchanges. However, as they are linked to the value of a single fiat currency, they act as an excellent opportunity for investors desiring to ensure the safety of their funds’ security during a bear market. Thus, stablecoins are similar to blockchain-enabled versions of the dollar.
Stablecoins are becoming a current trend in the financial market. They combine the advantages of both decentralized currencies and fiat money. The high interest of investors in this asset and the growth of the capitalization of stablecoins proves this. The emergence and development of new financial instruments demonstrate the urgent need for innovative financial solutions and new technologies in the FinTech industry.