Stablecoins are a type of cryptocurrency whose value is tied to fiat money or precious metals. Most often, stablecoins are pegged to the US dollar, at the rate of 1 asset = 1 dollar.
Stablecoins are used by cryptocurrency exchanges to quickly and cheaply transfer large amounts of dollars to each other, without the need to use a banking system. There, the fees for such transactions would be significantly higher.
How did stablecoins come about?
The controversial issue that arose since the advent of bitcoin 10 years ago about whether electronic or virtual money can compete with traditional types of currencies can already be said with full confidence that it has been decided in favor of the latter.
This is evidenced by the almost avalanche-like appearance of many cryptocurrency exchanges, crypto exchangers, payment services, blockchain start-ups, and even the spread of cryptocurrency ATMs. Moreover, many corporations, banks, world-famous investment funds are feverishly introducing departments for working with the blockchain , hiring hastily specialists.
However, in spite of such impressive prospects for cryptocurrencies, they still have a number of disadvantages, one of which is high volatility. Those. rapid and strong change in course over a period of time. This creates serious difficulties when using crypto as a means of payment – “here and now”.
One of the attempts to solve such a problem is to create some hybrid cryptocurrencies that serve as a cross between the usual fiat money and pure cryptocurrencies – stablecoins. This interesting innovation in the world of cryptocurrency will be discussed in this article.
What is stablecoin?
There is no exact or official definition of what stablecoin is (hereinafter referred to as SK) (from the English stable – stable, fixed). As a basis, you can take the definition that exists in such reputable financial analytical publications as Bloomerg.
Stablecoin refers to a cryptocurrency asset whose current value is provided by one of the traditional and liquid types of assets – currency, commodity values, i.e. assets accepted in world financial practice, as a reliable and legal means of calculation.
The main task of stablecoin is to smooth out the cryptocurrency volatility, due to the fact that its price (market value on the market) is “tied” to the price of, for example, the US dollar, Swiss franc or gold.
Here the analogy of what was before 1973, when both the American dollar and even the Soviet ruble were provided with full-weight gold, had a "gold standard" is quite appropriate. Using this practice implies the following benefits of stablecoins:
- the predicted cryptocurrency rate, which allows you to make payments even on long-term contracts between counterparties;
- insurance against a sharp depreciation of cryptocurrency, especially when insiders use information manipulative technologies;
- the possibility of using asset-protected crypts as a means of accumulation and reservation;
With all the advantages of such a solution to the problem of volatility, any SC has one big drawback. The fact is that the percentage of security or liquidity of the UK will be determined by the one who issued it. Those. stablecoin cannot solve the problem of rate manipulation by the issuer.
That is why so far, Bitcoin remains a reliable means of saving, or as it is called "digital gold." It is a fully decentralized crypto, no one can manipulate its course, depreciate, print more or lower the percentage of security with something valuable.
Types of stablecoins
The cryptocurrency market has just begun to conquer the global financial space and you should be prepared for the fact that a huge number of cryptocurrencies, types, varieties will appear.
As for the UK, the following classification is currently used, which is used in the practice of digital coins.
Secured by fiat currencies
Such stablecoins mainly work according to the scheme, when the number of issued digital coins is equal to the amount of real, reliable money used to secure it. For these purposes, the US dollar is still mainly used – the most reliable international means of payment. However, there are already attempts to make a UK based on other world currencies.
In particular, China has plans to make a crypto secured by the renminbi by 2021. Despite such a positive moment, all these fiatable stablecoins have the following limitations:
- IC carries those exchange rate risks as the currency, which serves as a means of ensuring it,
- not all payment systems, including cryptocurrency, can accept or service this type of IC
- there is a real risk of manipulating the course, since no one knows for sure how many dollars or other fiat will be used to provide IC (the problem of decentralization). The most used fiat-based ICs are TrueUSD (TUSD), USD Tether (USDT), USD Coin (USDC), Paxos Standard (PAX), Gemini Dollar (GUSD), Bitcoin Air (USDAP)
Secured by cryptocurrency
This is a cryptocurrency where a more reliable and liquid digital instrument is used as the underlying asset. It is generally used primarily to provide bitcoin, ripple and ether. Sometimes it is practiced to bind SK to the “basket” of cryptocurrencies.
This option does not particularly solve the problem of the volatility of the course, but it increases the degree of user confidence in this digital coin. An example from SC practice is “DAI” provided by Ethereum (ETN) .
Such stablecoins are relatively rare when used in practice calculations. The main task of those who issue such coins is to earn additional income in the form of Seigniorage. Those. income received by the cryptocurrency issuer from the fact that its users carry out all payments only through the payment servers of the crypto owner, paying him a percentage of the commission.
This model was initially widely used in the primary cryptocurrency offering market ICO, which peaked in mid-2016 and late 2017.
The main difference between unsecured ICs and other altcoins is that the issuer maintains a certain level of liquidity in the payment system, periodically neutralizing jumps in the IC rate.
Stablecoins market overview
Despite its relative youth, the UK market for the period from 2018 to mid-2019 showed impressive dynamics. So, during this time more than 200 new ICs and blockchain projects appeared on the market using this crypto format.
The distribution of SK shares by types of assets used as collateral is presented in the figure above.
The leading position in the market of derivatives of cryptocurrencies of the UK is occupied by Tether, with a dominance of 75%.
The trading volume of major types of ICs is still small and reaches $ 120 billion at the moment. But the dynamics so far remains upward and, as demand for crypto assets grows, in view of, for example, the impending powerful economic crisis, the growth rate of IC usage will take an exponential form.
TOP 5 stablecoins, list for 2019
Digital coins that comply with the SK standard and have direct practical application are:
- Tether (USDT) is the absolute leader in the stablecoin market in terms of issued funds and daily transactions.
- True USD – as the developers say, the liquidity of this token is provided in a ratio of 1 to 1. This is, like, a digitized US dollar.
- USD Coin – used for trading on Coinbase and Circle cryptocurrency exchanges
- Gemini USD – used in trading on the cryptocurrency exchange of the same name
- PAX – Paxos Standard Token. It is used for settlements on the Binance and Okex trading platforms.
Important figures are stability and liquidity.
From the point of view of today's user, two factors are critically important for stablecoin: stability and liquidity.
- Stability – an indicator of how much the coin deviates from the target price ($ 1),
- Liquidity, however, shows how many coins can be bought or sold without significant impact on the market, or the cost of slippage.
Stability can be approximated by various indicators of, although in the case of stablecoins it will be more accurate to talk about price emissions rather than standard deviation, liquidity can be judged by the volume of trades – the larger the volume of transactions, the cheaper each of them will cost.
If you measure this parameter more accurately, you need to take an order book and see how much you can sell or buy instantly within a given slippage range (say, 1%).
In practice, these two factors correlate: the greater the liquidity of the stablekion, the less susceptible it is to short-term price spikes. And for these two factors – stability and liquidity – so far no one is even close to catching up with Tether.
I have included market capitalization in the table because it is a number that interests many – but it can be deceiving. For example, although Dai's market capitalization is approximately equal to that of TrueUSD, the former is much less liquid.
Below you can see that the TUSD / USDT pair on Binance is incredibly liquid – with several million dollars of cash liquidity available within a 1 percent price deviation.
I do not consider these liquidity figures directly for TUSD, since most people are interested in trading stablecoins for BTC or ETH, and not among themselves.
If a coin is used as a carrier of value (NS), we expect a high market capitalization from it – a coin costs more than dollars. If this is a medium of exchange (CO), we can talk more about volume – a lot of coins are sold.
I included in the table included a measure of the speed of money, calculated as the average daily volume / market capitalization. For Tether, this parameter is incredibly high (this is an annual rate of more than 300, for comparison, for M1 dollars – all dollars, except for bank reserves, – about 6), which indicates that cryptocurrency is used mainly as a medium of exchange, and can also be an indicator that people actively avoid storing capital in Tether.
Prospects for the use of stablecoins in the future
Regarding the prospects for using ICs as a means of calculating and storing assets, specialists have many points of view. But the fact remains that as more and more financial transactions and transactions, especially international ones, go into the crypto space, the demand for a certain stable cryptocurrency standard will grow more and more. Many cryptocurrencies with the status of the UK are already claiming this role. The flagship is no doubt USDT.
In addition, it should not be discounted that the competition in the cryptocurrency market will only increase and at any time another initiative can intercept the initiative, for example, the Facebook developed cryptocurrency Libra.
Cryptocurrencies created specifically for mutual settlements, for example Ripple (XRP) and Stellar (XLM), can significantly move SK from this market. It is believed that they can be used as a cryptocurrency standard recognized by states, the IMF and world payment systems such as Visa and Master Card.
Publication date 08/16/2019
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Service from CipherTrace monitors suspicious activity for 700 crypto assets
The analytical service CipherTrace began to track suspicious transactions for more than 700 crypto assets, CoinDesk reports. The updated platform now supports 87 of the top 100 assets, as well as ERC-20 standard tokens. The CipherTrace solution allows you to view the complete transaction history for each of the digital currencies available for tracking and set alerts for addresses marked as suspicious. The company sells its product […]
The analytical service CipherTrace began to track suspicious transactions for more than 700 crypto assets, CoinDesk reports.
The updated platform now supports 87 of the top 100 assets, as well as ERC-20 standard tokens. The CipherTrace solution allows you to view the complete transaction history for each of the digital currencies available for tracking and set alerts for addresses marked as suspicious.
The company sells its product to government organizations and law enforcement agencies, as well as companies seeking to comply with increasingly stringent regulations.
“By only helping virtual asset services free networks from criminals and terrorists, can the industry achieve a level of trust that is sufficient for massive adoption ,” said CipherTrace CEO Dave Jevans.
Also, he said, previously many large sections of the cryptocurrency ecosystem remained opaque, which made it difficult to combat money laundering and the financing of terrorism.
Recall that in September CipherTrace launched the Scout application , which allows determining whether certain coins in the Bitcoin and Ethereum blockchains are connected with criminal activity.
In particular, the application identifies coins that could be used in illegal activities, including darknet purchases and ransomware attacks requiring ransom in cryptocurrencies.
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CME: The number of contracts for bitcoin futures in 2019 increased by 61%
The Chicago Mercantile Exchange (CME) group on Monday presented a detailed report on the performance of its bitcoin futures market for the third quarter of this year.
According to the exchange, the number of active contracts compared to the same period last year increased by 61% – from 2,873 to 4,629. Despite the BTC price drop by 25%, the number of active contracts compared to the second quarter decreased by only 1%.
The average daily trading volume for CME bitcoin futures in the third quarter amounted to 5,534 contracts, up 10% compared to last year. The company notes that this value corresponds to 27,670 BTC or $ 289 million.
“Institutional flows remained strong. 454 new accounts were added against 231 in the third quarter of 2018, ”the exchange said.
The number of customers holding more than 25 bitcoins and ranked among large investors on this basis increased from 45 to 47 from the last quarter, while there were 34 of them a year ago.
About half of CME bitcoin futures trading in the third quarter was accounted for by users from the United States, 26% from the Asia-Pacific region, and 21% from Europe and the Middle East.
Last week, CME's head of alternative investments, Tim McCourt, said that the exchange hopes to attract no less interest in the upcoming options for bitcoin futures than in the futures themselves.
Publication date 10/15/2019
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CoinShares and Blockchain launch gold token on Bitcoin sidechain
CoinShares, a company specializing in circulating asset management, together with Blockchain, a cryptocurrency wallet provider, as well as the Swiss company MKS, which provides precious metals trading services, introduced the DGLD token, secured by gold.
According to CoinShares, the launch of the network took place today, the project tokens are provided with $ 20 million in gold, which will be held in the Swiss store. Each DGLD token is supported by 1/10 troy ounce.
Danny Masters, a spokesman for CoinShares, noted that the new asset will function as a sidechain of the flagship cryptocurrency network. The token combines the stability of the world's most stable asset, that is, gold, and the security of the most reliable blockchain network, i.e. Bitcoin.
Masters also drew attention to the fact that DGLD owners can be calm about the fact that gold is physically stored in a reliable way in Switzerland, and at the same time take full advantage of a digital asset without resorting to the help of intermediaries, such as ETFs for gold.
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