Stablecoins became very popular in the last years. Although they have been for a long time in the market, interest for them expanded in recent months. There are different types of stablecoins and each of them has different characteristics.
However, the main benefit of stablecoins is that their price is tethered to a fiat currency (sometimes virtual currency) and they do not fluctuate (or fluctuate very little). In this guide, we are going to share with you all the information you should have about stablecoins.
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Stablecoins are virtual currencies that have their price derived from a fiat currency or another virtual currency. For example, Tether (USDT), the largest stablecoin in the world, has a price of $1 USD. 1 USDT is equal to $1 USD. Although there could be some fluctuations (0.999 USD or 1.001 USD) the price of the coin is always $1 USD.
Other stablecoins can follow and track the price of other fiat currencies such as the euro (EUR) or the British pound (GBP).
These stablecoins usually run on different blockchain networks such as Ethereum (ETH) and they are fast ad cheap to use. Rather than running on top of legacy systems, transactions can take just a few minutes to be processed.
Stablecoins require backing in order to keep their price tethered to a fiat or crypto pair. For example, Tether’s parent company has assets backing the entire supply of USDT. There is an asset worth $1 backing each USDT released to the market.
There are other types of stablecoins, those that follow the price of a cryptocurrency. For example, Wrapped Bitcoin (WBTC). This digital currency follows the price of Bitcoin. Thus, it is always worth 1 BTC (with some price fluctuations).
Although holding stablecoins is not the same as holding “real assets”, they have many advantages.
There are several stablecoins in the cryptocurrency market. Not all of them are the same. Indeed, you will find that there are many differences between stablecoins in the crypto market. Some of them are larger, and not all of them are supported by the same exchanges.
This is the largest and most popular stablecoin in the world. This virtual currency became the 5th largest in terms of valuation with $47.83 billion.
Tether is supported in most of the crypto exchanges and it became very useful when there were no fiat on-ramps in several crypto platforms. Nowadays, several companies are using not only Tether but also other stablecoins.
This digital asset has been released by Circle and it is available in several crypto exchanges in the market. It is now the second-largest stablecoin in terms of market valuation with $11.3 billion. It is usually the favourite stablecoin used by large companies.
Binance USD (BUSD) is the stablecoin created by the Binance crypto platform. The BUSD coin is supported on different DeFi platforms and it powers the Binance ecosystem (one of the largest in the market).
Nowadays, BUSD is the 33rd largest virtual currency with a market cap of $5.40 billion. It is also the third-largest stablecoin in the world.
Wrapped Bitcoin is a stablecoin that follows the price of Bitcoin and it is used in different DeFi platforms. Users that want to get access to BTC exposure on Ethereum-based decentralized finance platforms could purchase WBTC. This token is now the 19th largest in the world with a market valuation of $9.25 billion.
There are many different use cases for stablecoins. The first use case is related to providing a hedge to traders against volatility in the crypto market. Users can trade their favourite virtual currencies even if there are no fiat pairs. By using stablecoin pairs, they could get access to a coin that tracks the price of fiat currencies.
Moreover, companies are using stablecoins to process international fast and cheap transfers. They make it easier for firms to send and receive money. Rather than waiting long periods of time for their fiat transfers to be confirmed, these stablecoins process transfers in minutes and for very low fees.
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