What are stablecoins and how can they reduce crypto currency volatility

volatility stablecoins

Stablecoin is a cryptocurrency that has been designed to reduce or rather minimizes the price volatility. These cryptocurrencies are used as units of account or as stores of value or in other instances where cryptocurrencies may be undesirable. There are different designs used by stablecoin authors to achieve price stability. Its value can be pegged on fiat currencies or by exchanging traded commodities such as gold, silver, Bitcoin and industrial metals.

Many exchanges are wary of dealing with anything that is crypto related due to compliance reasons this makes many exchanges not to accept a dollar or euro deposits. Clients, on the other hand, want to trade out of cryptos into dollars at times of high volatility, stablecoins give them a solution to this dilemma, enabling a transaction from a crypto into dollars and vice versa as the need may dictate.

How about the stability and trust of bitcoins

Stablecoins harness the benefits of crypto values and transfer them digitally combining them with the stability and trust in the mainstream currencies. Moreover, stablecoins are a bridge between cryptocurrencies and mainstream currencies. Whereas critics say that cryptos have plagued by price volatility with a swing of 5% to 10% in a day making them speculative investments, unlike stablecoins which are an asset as well as a currency.

Stablecoins are using software rules in trying to match supply with demand to maintain a peg into something like the US dollar. This has been made possible by the second type of stablecoin that is not in any way backed by any reserves but instead guided by an algorithm.

Does the value of gold relational to stablecoin?       

There are also reserved stablecoins, which function just like paper money that is backed by gold just like currency is backed by gold in the central bank. These types of stable coins are backed by one-for-one by reserves of the currency they are pegged to. They are therefore given room for an exchange between them and a dollar; this can be done by depositing the dollars in the back.

Nonetheless, stablecoin can be used not only in crypto insurance and savings but also there can be room for many successful stablecoins. As long as the stablecoin are still in the cryptocurrency arena, there is so much in terms of changes that we need to expect. With that, it is very important to be aware of the all that takes place around stablecoin.

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