Cryptocurrencies such as Ethereum and Bitcoin provide certain advantages, including intermediary-free transactions, decentralization, etc. But, one of the significant setbacks of cryptocurrency is that they are volatile, which means that the rates are irregular and tend to fluctuate. Though the exact mechanism differs from one coin to other, stablecoins are made to be resistant to that instability. In short, stablecoins handle rate fluctuations by connecting the cryptocurrency’s value to more stable assets such as fiat currencies.
What Are Stablecoins?
These are a group of cryptocurrencies that tries to provide price stability compared with unpegged cryptocurrencies such as Bitcoin. The most crucial thing you should understand regarding stablecoins is that these coins are virtual currencies on the blockchain mechanism. You can quickly identify the stablecoins by the collateral structures supporting them.
4 Types of Stablecoins
There are four types of stable-coin, depending on their underlying collateral structure.
1. Fiat-collateralized Stablecoins
These types of stable-coins are the primary version of stablecoins you would find, and they have the support of a fiat currency like the US Dollar, GBP, or Euro. Fiat-collateralized they are the most accessible types of stablecoins with a 1:1 ration backing. That means that one coin would be equivalent to a single currency unit like one Euro or a dollar. Hence, every fiat-backed stablecoin has genuine fiat currency in a bank account to support it. You can redeem your coins because the unit handling the stable-coin takes the respective fiat currency price from your savings and transfers it to your bank account. Simultaneously, an equal sum of stablecoins is destroyed or removed from circulation.
This type of stablecoin is the most accessible type because of its structural benefit, and simplicity gives the most precious benefit for newbies to comprehend cryptocurrencies properly. Hence, fiat-backed stablecoins could play a significant role in supporting the big-scale acceptance.
2. Commodity-backed
This type of stable-coin supports various types of identical assets like precious metals. Gold, the essential product employed as collateral for these commodity-based stablecoins.
Additionally, you could discover several other stablecoins with the support of assets like precious metals besides gold, oil, and real estate. The possessor of this type of stablecoins usually practices possession over a tangible asset having an actual value, which is the main benefit of most cryptocurrencies.
Typically, the commodities allow for appreciating in worth with passing the time. Consequently, such types of stable-coin tend to deliver better results for people using and holding commodity-backed stablecoins. Moreover, commodity-collateralized they allow the opportunity for anyone who wants to invest in prized metals like gold.
Earlier, such commodities were limited exclusively to the affluent people. But, commodity-backed stablecoins generate new possibilities in the investment field for regular people, despite the geography.
3. Crypto-backed
Crypto-collateralized provide better decentralization than fiat-collateralized stablecoins. Additionally, they typically over-collateralized to absorb price variations as collateral. This type of stable-coins supported by other cryptocurrencies. That implies that minting $100 of crypto-supported stablecoin, $50 bitcoins will be reserved separately.
This type of stable-coins is more fickle than other, and they encounter massive lows and highs in terms of interest rates. WBTC (Wrapped Bitcoin) is a perfect example of a cryptocurrency-backed stable-coin. Moreover, certain crypto-backed stable-coins also get support from numerous cryptocurrencies to make sure efficient risk distribution.
In addition, crypto-backed have the benefit of better liquidity. But, crypto-collateralized stablecoins are considered the most intricate type of stable-coin presently.
4. Algorithmic Stablecoins
That is the last type of cryptocurrency. Algorithmic or Non-collateralized stablecoins don’t possess any collateral or assets to back them. This type of stablecoins pursues an algorithm to control the supply of stablecoin. This kind of approach is also referred to as seignorage shares.
New stablecoins will generate with the increased demand to decrease the rates to the standard level. In the case of significantly low coin trading, crypto coins on the marketplace bought to reduce the circulating supply.
Usually, algorithmic stablecoins could provide stability as per market demand and supply tenets. It is also crucial to remember that algorithmic stable-coins present a higher level of independence and decentralization. However, such algorithmic blockchain types rely on constant development to make sure success. Just remember that no collateral is involved there with algorithmic stablecoins for liquidity.
Advantages
- They are less unstable than other cryptocurrencies.
- These are secure to invest in because fixed assets support them
- They allow global payments
- They incur lower charges
- These coins allows safe transactions
- These coins are entirely or somewhat anonymous but stable
Top 3 Most Popular Stable-coins
Tether (USDT), Binance Coin (BUSD), and USD Coin (USDC) are some typical examples of stablecoins. Presently Tether is a very famous.
Tether: it is a hugely famous and has also gotten the attention of several investors. It is a cryptocurrency that Bitfinex issues. US dollars back, Tether. It implies that treasury bills, securities, and cash reserves of a particular amount will be reserve as collateral to mint collateral. The ratio of tether minting is 1:1, which implies that one tether coin is equal to one US dollar.
Binance USD (BUSD): another famous stablecoin backed by the U.S. dollar. You can buy BUSD 1:1 using the U.S. dollar. This currency was created by the association between Paxos (a regulated blockchain infrastructure system) and Binance (one of the famous cryptocurrency exchanges). The objective of this crypto coin is to boost the pace at which virtual assets move via the international financial network. BUSD is the local stablecoin of the Binance platform, where you can effortlessly move out and in the crypto transactions instead of wiring fiat currency from the digital wallet for making crypto trades.
USD Coin (USDC)
The U.S. dollar also backs USD Coin (USDC). Since its arrival, this cryptocurrency has utilized by businesses and applications and works on several blockchain networks. Many protocols, digital wallets, crypto exchanges, and other services integrate USDC into their exchanges to allow quick payments internationally.
How To Buy Stablecoins With Credit Card on Binance?
Follow the below steps-
1: Visit the Binance app, log in to your account, and click on “Buy Crypto.” Then choose the payment option “Credit/Debit Card.”
2: Select your preferred fiat currency and type the fiat amount you want to buy.
3: Now click on the option “add a new card,” and then fill up your credit card information and billing address. Then click on “Add Card.”
4: cross-check your payment information and then verify your order.
5: Confirm your payment by entering your bank’s OTP.
Conclusion
Stablecoins are a crucial element of the crypto environment, and they made to be a trusted source of exchange for investors and traders. Furthermore, gold-backed or fiat are a core element in reinforcing the crypto economy, mainly when the marketplace is bearish. So, if you seek a long-term investment option, you can prefer stablecoins as they give sound returns and are safe.
