What are Stable Coins?

About Stable Coins:

• Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency or gold, to maintain a stable price.
• They strive to provide an alternative to the high volatility of popular cryptocurrencies, making them potentially more suitable for common transactions.
• Stablecoins can be utilized in various blockchain-based financial services and can even be used to pay for goods and services.
• Although the term “stablecoin” is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.
• Types of Stablecoins: There are primarily three types of stablecoins: fiat-collateralized, crypto-collateralized, and non-collateralized (algorithmic).
  • Fiat-collateralized stablecoins are pegged to a specific asset, such as a fiat currency. The entity behind the stablecoin maintains a reserve of the asset or assets backing the stablecoin, supporting the value of the digital currency.
  • On the other hand, non-collateralized (algorithmic) stablecoins use software algorithms to automatically adjust the supply of the stablecoin based on demand, aiming to maintain a stable price.

What is Cryptocurrency?

• Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds.
• These currencies operate independently of a central bank.
• The economic transactions underlying cryptocurrency are decentralized, distributed, and disbursed.
• The first and most famous cryptocurrency, Bitcoin was introduced in 2009.
• Technology:
  • Most cryptocurrencies are built on blockchain technology.
  • Blockchain is a decentralized and distributed database on a peer-to-peer network which works on the basis of a consensus mechanism involving every node (computer) on the network.
  • Blockchain is a peer-to-peer distributed network that records a public history of transactions without actually recording identities of the parties or the transaction details.