Stablecoins are distinct from other varieties of cryptocurrencies in a number of fundamental ways. Some of features of stablecoins viz:
Price Stability: The ability of stablecoins to keep a stable value is its most crucial quality. The stablecoin is tethered to a fiat currency, good, or other stable asset, like gold, to achieve this. This makes other cryptocurrencies more useful for transactions and as a store of wealth by lowering their volatility and instability.
Collateralization: Stablecoins that are backed by a commodity or fiat currency are examples of collateralized assets. This implies that an equivalent quantity of the collateralized asset is maintained in reserve for each stablecoin that is in circulation. As a result of being backed by a stable asset, this helps to ensure that the stablecoin’s value stays stable.
Algorithmic Mechanisms: Some stablecoins use computational means to guarantee stability, such as a central bank or a decentralised autonomous organisation (DAO). These processes enable the stablecoin’s supply to be automatically adjusted in reaction to changes in demand, assisting in maintaining its value.
Transparency: Different levels of transparency might be accessible for stablecoins, depending on whether they are centralised or decentralised. A single organisation that controls and issues centralised stablecoins may be more open about its activities and reserves. On the other hand, decentralised stablecoins are frequently transparent by design, with their operations and reserves being viewable on a blockchain.
Legal Status: Depending on the nation or location, stablecoins may not be legal in some jurisdictions. Some stablecoins might be seen as securities and be governed, whilst other stablecoins might be regarded as commodities or currencies and not be governed to the same extent.
Use Cases: There are several uses for stablecoins, including remittances, e-commerce, and cross-border transactions. Similar to traditional fiat currencies, they can also be used as a store of value and as a hedge against the volatility of other cryptocurrencies. They can also be used to ease trading in crypto-assets while avoiding the volatility of Bitcoin and other significant crypto-assets because stablecoins are fixed to the US dollar.
In summation, stablecoins are a fresh and growing asset class in the cryptocurrency space. Before making an investment in a stablecoin, it’s crucial to understand how each one differs from the others in terms of features and qualities. Stablecoins have the potential to offer a more stable and transparent alternative to conventional fiat currencies and other cryptocurrencies.