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What Are Stable Coins And Why Are They Becoming Popular?

In these past two years, we have seen how many potential cryptocurrencies have. However, the volatile nature of these cryptocurrencies has made it a target of much criticism. Can cryptocurrency move beyond just being a speculative investment asset? Can it one day be seen as a useful currency? If we compare cryptocurrencies to traditional investment assets, cryptocurrencies are far from classified as a safe investment. With the desire to bring about stability in the cryptocurrency market, a new concept was born, which is called stable coins.

Stable coins are currently touted as the holy grail of cryptocurrency. The concept of these coins is that these are still cryptocurrencies, but are pegged to the price of another stable asset. For example, a stable coin can be a cryptocurrency directly linked to the US dollar. Despite being a cryptocurrency, they will be less volatile compared to Bitcoin or any other major cryptocurrency. This concept is expected to create an ideal cryptocurrency and can be used as a reliable medium of storage. Therefore, stable coins can potentially be adopted as a method of payment in the real world as retailers are more willing to accept a stable cryptocurrency.

Experts believe that stable coins are essential in bringing forth the benefits of cryptocurrencies, especially as the industry wants to expand into the mainstream. Stable coins provide something that cryptocurrencies cannot offer in the short period. However, there is a possibility that stable coins may be flawed. For instance, one of the most popular stable coins in the market is known as Tether (USDT).

The creator of this coin claims that the value is pegged to the US dollar. Therefore, if anybody wants to own one unit of USDT, the person has to pay exactly $1. Despite this, a number of concerns have been emerging. One concern is that Bitfinex, which is an exchange that is currently trading this cryptocurrency, is issuing more USDT than the amount of US dollars that it has in the bank. This is highly alarming because the exchange shares leadership in the cryptocurrency. Therefore, people are questioning the legitimacy of this stable coin.

Investors should also be concerned about Tether as there has been no external audit performed so far on the cash reserves of Bitfinex. Another reason to be concerned about is that the company ended the relationship with its auditor before an expected audit was going to be released.

TrueUSD learning from Tether’s mistakes

Despite the criticism over Tether’s reputation, other companies are looking to bring in a new stable coin. One of them is TrueUSD. This stable coin wants to learn from the Tether’s mistakes. Under this stable coin, users will have to complete a process in which their identity is verified when they want to purchase or redeem tokens in the escrow account. Once their identity has been verified using smart contracts, only then will be stable coin be issued.

Moreover, the stable coin also publishes regular reports fromCohen & Co. to demonstrate how it is adhering to the law and is fully collateralized by US dollars. Its smart contracts will also undergo public attestations. As a whole, this stable coin is believed to be resilient against market volatility. Since its launch, the value of the cryptocurrency has remained stable at around $1.

If you are a cryptocurrency trader, you would know that the price of the cryptocurrency never remains the same. You could wake up tomorrow morning and the price will be completely different from what it was the night before. Hence, stable coins present a good solution to a high level of speculation.

In addition, Saga is another stable coin making headlines. The platform of this stable coin will utilize smart contracts. One unique thing about this platform is that users can sell the coins back to the network instead of selling to another user. Similarly, Saga customers also have to undergo an identification process and anti-money-laundering requirements.

Why stable coins?

For most cryptocurrency enthusiasts, having stable coins to use for their daily transactions can be a game changer. However, people may wonder why don’t people use cash instead of using stable coins since they have similar value? To this, we say that the stable value of the coin helps to provide users with the benefits of using cryptocurrencies without worrying about the ongoing speculation.

Also, another stable coin pegged to the value of real estate is known as the SwissRealCoin.This was created by a team of real estate and tech professionals back in Switzerland. The team believes this will reduce volatility within the space. This coin makes a lot of sense because real estate is one of the safest and stable investments to date. Although so, there are no guarantees that the market won’t collapse at any time, having a stable coin backed by real estate give confidence to people who buy the coins.

What can we expect from stable coins?

As more cryptocurrency enthusiasts want to enjoy the benefits of using cryptocurrency without having to worry about the fluctuating price, stable coins will grow in popularity. Therefore, stable coins bring a whole new level of playing field for the cryptocurrency market, especially for investors who are doubtful about cryptocurrencies. In addition, stable coins can be utilized for daily transactions, making it more appealing to investors.

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