The recent market movement has seen Bitcoin crash hard dragging many of the other crypto coins with it. However, some cryptocurrencies are designed to keep their prices stable. The ongoing market crash is a test for existing stablecoins. People have been able to see if they deliver on their promise or they are unreliable.
Crypto Volatility Proves Stablecoins Could Be the Future
Since the beginning of cryptocurrencies, they have been riddled by volatility. It’s the reason that has drawn in speculators who proceed to bet on their rise to gain hefty profits. Unfortunately, this makes the crypto coins unusable for daily transactions.
Stablecoins came about in a bid to address this issue. So far, there are projects like Tether which is pegged to the USD, which means one USDT is equal to one dollar.
More importantly, stablecoins should be commercial vehicles. Currently, they exist in three forms; fiat-collateralized stablecoins, cryptocurrency collateralized stable coins and non-collateralized stablecoins.
Fiat-collateralized stablecoins have fiat money backing the cryptocurrency. For every digital coin, there is equivalent fiat money that is held as collateral in a central bank.
Crypto collateralized stablecoins aim to eliminate the dependency on fiat completely. It’s something that helps them create a more decentralized solution that relies on cryptos such as BTC or ETH. However, they are a bit complex given that their underlying asset is highly unstable.
To take care of the instability, these stablecoins are over-collateralized to neutralize any eventual price fall. So for example, for one to get $100 in stablecoins, they would have to deposit $200 ETH.
The last form is non-collateralized stablecoins. Here smart contracts are in control. They regulate the supply and demand scheme and always ensure the price stays at one dollar. However, they are also complex, and the only promising project in this area is Basis which doesn’t have an official launch date yet.
Even though some critics are quick to question these projects, wondering why people don’t just use the dollar directly, stablecoins like all digital currencies have many advantages.
They facilitate fast international payments, are readily available to anyone with an internet connection, and they eliminate the need to go through a banking system.
While Bitcoin and other cryptocurrencies have crashed by more than 30 percent, stablecoins have managed to maintain their prices.
Its safe to say they have delivered on their promise