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Stablecoins: What are they and how are they classified?

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Stablecoin ranking
Collateralized stablecoins
Uncollateralized stablecoins
conclusion

Large cryptocurrencies like Bitcoin and Ethereum often offer a number of benefits when trading or holding . However, this pair of tokens brings with it a high level of volatility and, therefore, the latent risk of losing the capital invested. Furthermore, both coins provide little collateral to their users..

Precisely to mitigate the margins of danger caused by the vertiginous change in the price of tokens, stablecoins emerge. It is a new category of crypto assets, which aims to provide protection to investors experiencing a moment of volatility.

Stablecoins are characterized by being linked directly to a fiat currency, whose value serves as a backing for each of the tokens. Similarly, the digital asset can be associated with a property, precious metal or any other cryptocurrency on the market..

On the other hand, there are stablecoins controlled by an algorithm. This process occurs directly within the token's Blockchain network. Thus, the price of the respective asset is maintained over time.

Whether you decide to invest in high volatility cryptocurrencies or, on the contrary, bet on stablecoins, the recommendation is to visit Crypto Engine . It is a reliable and secure digital asset exchange site. In it you will find the necessary tools to trade with any currency..

Also, it is important to know how crypto assets work, applied technology, investment methods, etc. To do this, you can enter Crypto Engine, which is a website with an extensive list of information regarding the crypto world.

Stablecoin ranking

Stablecoins are a fairly broad category of tokens, so there are two types of them. Thus, we find collateralized stablecoins, also known as backed assets. In this group are the stable tokens associated with fiat money, goods and cryptocurrencies.

On the other hand, there are non-collateralized stablecoins or unbacked assets, that is, they are not associated with an external value. Instead, these tokens use an algorithm that allows them to prevent their price from fluctuating.

Collateralized stablecoins

  • Stablecoins associated with fiat currencies

Tether stands out as a pioneer among fiat-backed stablecoins. The asset uses Blockchain technology and the anchor per token corresponds to 1.00 US dollars.

The use of this type of digital currency is very simple. You only have to make a deposit on the platform, using dollars for it. Afterwards, the stable tokens will be received, which, in the case of Tether, would be the well-known USDT. It is then possible to invest, buy or sell with these currencies.

The benefit of pegging between the token and the dollar is that the user can exchange the USDT to dollars without being affected by the fluctuation.

  • Stablecoin associated with other assets

The stablecoins associated with the value of a good refer to precious metals or real estate. For example, the G-Coin is a stable token associated with the value of one gram of gold.

This stablecoin can be used in different ways. Users can transfer the token to another wallet to make a payment, just like any cryptocurrency. Likewise, it is possible to exchange the asset for its physical gold equivalent or use it as a long-term store of value.

  • Stablecoins associated with other cryptocurrencies

Within the group of collateralized stablecoins are the tokens associated with other cryptocurrencies. Said anchor allows maintaining stability in the value of the asset.

This is the case of the stable crypto asset DAI, which remains anchored to the dollar, because it uses the Ethereum network and, therefore, the value of Ether. For this to be possible, the person must generate DAI tokens through the exchange of ethers within the platform.

In addition, it is necessary to maintain a deposit of ethers, in order to obtain financing. In this way, it is possible to protect the stablecoin from the volatility of the associated token.

Uncollateralized stablecoins

  • Stablecoins controlled by an algorithm

Algorithm-controlled stablecoins work on the basis of a blockchain and a smart contract . All this technology and protocols prevent volatility from directly affecting the token.

This is precisely what happens with the stablecoin USDX, which has managed to anchor itself to the value of the dollar and thus achieve stability. For this, the smart contract provides a decentralized operation, which ends up offering a correct regulation of the operation.

conclusion

Stablecoins are an offshoot of cryptocurrencies, therefore they should not be labeled as competitors to core tokens. In fact, these stablecoins have been designed to help mitigate volatility.

The path traveled by stablecoins has been full of controversies and doubts coming from investors. However, these tokens have gained great popularity in the cryptocurrency market, due to their remarkable growth in terms of capitalization and trading volume.

Disclaimer:  The content and links provided in this article are for informational or promotional purposes only. islaBit does not offer legal, financial or investment recommendations or advice, nor does it replace the due diligence of each interested party. islaBit does not endorse any investment offer, advice or the like promoted here.



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