One of the main issues with cryptocurrencies does remain their volatility, which can sometimes reach extremes. Bitcoin, the original cryptocurrency, is a telling example. Its immense fluctuations (especially when it went sky high) made it famous, leading some to regret not having had the foresight to invest at the right moment. This instability also affects most of the other altcoins, including Ethereum. The main reason for this constant rise and fall is the absence of a central authority to govern them. Moreover, these currencies do not benefit from any official status. Stablecoin is considered an alternative thanks to its exceptional stability. As such, it sparks much interest and some legitimate questions.
Learn everything there is to know about these tokens at the crossroads of two worlds thanks to our Stablecoin guide.
Stablecoin Introduction and definition
What makes Stablecoins so unique is the way they are indexed. Pegged to a fiat currency, they mimic its value and allow users to carry out exchanges all over the world thanks to blockchain technology all without taking risks in terms of stability.
While they do offer innovative and forward-looking perspectives, “typical” cryptocurrencies, such as Bitcoin and Ehtereum, do not boast any anti-volatility measures. This greatly impacts their usability as, while the technologies that support them make these currencies very easy to exchange in principle, their price fluctuations also turn them into a high-risk investment. As payments must, by definition, cover the exact value of goods or services, it is delicate to utilize currencies whose price can change, sometimes from one second to the next.
The main advantages of Stablecoin address this issue. Stable assets experience negligible price movements because they emulate the value of the official currency they use as collateral.
How do Stablecoins work?
To avoid the fluctuations that affect other tokens, Stablecoins peg their value to that of less volatile assets, usually a fiat currency, US dollars in particular. These assets can also be CPI (Consumer Price Indexes), precious metals and, in theory, any other stable resource.
The way in which these tokens establish and maintain that connection serves as an architecture for the entire system. Some coins, such as the well-known Tether, need to be collateralized by a fiat currency. To that end, token issuers have to escrow the same amount in US dollars (for instance) as the number of coins they wish to release. This guarantee prevents price fluctuations.
It is worth noting that there are some stable yet decentralized cryptocurrencies, such as the DAI Token, which relies on smart contracts placed on the Ethereum blockchain.
What are the Stablecoin currenlty in circulation?
There are three types of Stablecoin currently in circulation.
As previously mentioned, the first are fiat-collateralized and can be based on the US dollar, the Euro, etc. The issuer of this stable token owns one unit of the currency in question for every token released. They are therefore able to give any token holder the exact same number of dollars (or whatever currency chosen) in exchange for their coins. That is, of course, if their commitment is honored. This category of Stablecoin includes:
USDT Tokens (Tether)
TUSD Tokens (TrustToken)
GUSD Tokens (Gemini)
PAX Tokens (Paxos)
Crypto-collateralized Stablecoin use other cryptocurrencies (such as ETH) to tie up the capital necessary to issue a token. In practice, to make sure the coin can maintain a $1 value, the ETH reserve is oversized to safeguard against the effects of more than probable fluctuations. There are also “basket-based” models where several cryptocurrencies whose combined values can reach 200% of that of the Stablecoin are used as collateral. Such coins include:
HAV Tokens (Havven)
DAO Tokens (Maker)
DAI Tokens (Dai)
Finally, non-collateralized Stablecoin follow a different model. Their workings are similar to those of a fiduciary currency and they are governed by a central authority, such as a Central Bank, for instance. These tokens include:
BSS Tokens (Basis) – defunct
Why use a Stablecoin?
Does a Stablecoin possess all the advantages of cryptocurrencies without any of their usual drawbacks?
The positive aspects of cryptoconomy are now widely recognized: low fees, secure transactions, (relative) anonymity… Stablecoins also boast these elements and have the merit of being backed by reputable assets. They represent an in-between solution which bridges the gap between the crypto world and that of traditional payments. However, many accuse Stablecoins of causing harm to the very concept of cryptocurrency, as the principles of decentralization, very dear to crypto projects, are completely flouted by stable tokens.
Those who wish to use digital currencies in their everyday life are more than happy to adopt Stablecoin, while those who strongly advocate for the values of blockchain technologies are sometimes entirely opposed to it. The search for price-stable cryptographic assets may seem like an oxymoron to those who see them as a (risky) means of adding value to their assets. However, there does exist a category of users looking for solutions to make crypto more compatible with the idea of a blockchain-based economy.
The drawbacks of Stablecoin have much to do with the responsibility some feel like they bear in the volatility of decentralized cryptocurrencies. Indeed, whenever a Whale (one of the very few people who own immense quantities of tokens) decides to convert their crypto assets into Stablecoin, the consequences are tremendous. In such cases, the value of cryptocurrencies tends to collapse. Stablecoins are therefore often accused of allowing market manipulations.
How to buy TrueUSD (TUSD) and Tether (USDT) on Bitit?
Crypto-collateralized tokens – such as TrueUSD (TUSD) and Tether (USDT) – can be obtained from a DEX in exchange for BTC or ETH. The process does remain relatively complex, though, and implies that you must already own crypto tokens or be willing to buy some first.
On Bitit, you can purchase TUSD or USDT without having to rely on another cryptocurrency. Contrary to exchange platforms, Bitit gives you the possibility to pay for your tokens using the fiat currency of your choice. Credit and debit cards, wire transfers and even cash are supported for a simpler, more universal approach.
Once you have ordered your tokens, they are automatically and immediately sent to your favorite means of storage.
How to store Stablecoin?
Some Stablecoins, such as Tether, have their own wallet (Tether Limited Wallet). However, many popular wallets are compatible with these somewhat peculiar cryptocurrencies. For instance, you could use MyEtherWallet or OmniWallet. If you prefer a physical storage solution, Ledger is considered a reliable, secure alternative.
Stablecoin news seems to demonstrate a recent tendency towards more control and oversight in a context where some were accused of not always playing by the rules, particularly with regard to the required reserves. New regulations could also imply that anti money-laundering and KYC laws would be enforced. Stablecoin are therefore likely to become even more official, which may finally grant them more legitimacy. Those who find them too centralized to belong in the world of cryptocurrencies and not sufficiently supervised to earn their place among official dematerialized currencies could then see them as a more acceptable middle ground.