What is a stablecoin

A stablecoin is a cryptocurrency whose exchange rate corresponds to a tangible asset. For example, to fiat currencies, securities, precious metals, real estate, habitats, etc.

The first stablecoin in 2015 was USDT (Tether), whose exchange rate was equal to the dollar. Since that time, several dozen varieties of stablecoins have appeared in circulation.

The main purpose is to connect the world of cryptocurrencies with the material world. The need for such a bridge arose due to the fact that for the blockchain there are no such concepts as the dollar, oil, gold. For him, there is only a set of numbers and letters of the code, hashrate, number of transactions. It is the assets created on the basis of the blockchain and tied to the usual values ​​that are the universal transitional link.

How it is applied

Stablecoins are used by investors as a buffer tool in the following situations.

* Entry into the cryptocurrency market with large capital. It can be first converted into digital money with low volatility and then trading can begin.
* Temporarily protect yourself from increased volatility. It is enough to transfer funds from ordinary coins to stable ones in order to wait out the restless period.

In the future, it may be used as the main means of payment in countries with unstable economies, where the national currency is depreciating right before our eyes.

There are three types of stablokins.

*Fiat-backed. The organizations issuing them claim that the coins are backed by government bonds or real dollars in the bank. In fact, these are not cryptocurrencies, but fiat converted into a token. It is almost impossible to thoroughly check the accounts of such enterprises, so users just have to trust their reputation. By the principle of operation, they are more similar to payment systems, such as Payeer or WebMoney, only with completely transparent transactions.
* Decentralized or algorithmic. Appeared in 2013. Usually backed by the underlying blockchain token and additional stabilizing smart contracts. According to the principle of functioning, these are already real crypto-currencies that are not subject to centralized regulators or one issuer.
* Banking and government. It is assumed that central banks will support this type in the same way as state currencies and issue the status of an official means of payment.

The first type of coins has gained the most popularity, as they:

* understandable to users who have been working with electronic money for a long time;
* are well attached to the dollar during crises and other economic shocks;
* occupy a large niche in the real economy, because even shuttle operators are already transferring payments from Russia to China using USDT.

The second type has firmly established itself in DeFi projects, as it provides more independence, but cannot get beyond them. The third option exists only in Venezuela and the Bahamas, but due to non-transparent provision and traffic, its use in real life is still a matter of concern.