Stablecoin is a cryptocurrency whose value is assigned to the price of stable assets such as fiat money, gold or other cryptocurrencies. Stablecoins are designed to help investors minimize market volatility.
3 types of stablecoin:
- Fiat-collateralized stablecoin: This is a stablecoin backed by real-world currency (most typically USD), which works by depositing cash in a reserve bank, then issuing cryptocurrency at a ratio of 1:1 equivalent to that amount of cash. For example: If there are 1,000,000 USD stablecoins in circulation, there will also be 1,000,000 USD in reserve in the bank to guarantee conversion.
- Crypto-backed stablecoins: Due to the high volatility of the cryptocurrency market, crypto-backed stablecoins are often overvalued as collateral. For example, $1 Stablecoin could be equivalent to $2, even $3 in crypto, depending on the volatility in the market. This helps to ensure that even if the price drops, there will still be enough $1 in reserve for each stablecoin in circulation.
- Non-collateralized Stablecoin: This type of Stablecoin maintains price stability based on algorithms and economic models. Similar to the role of a central bank, the Stablecoin issuer will control the money supply by: using an algorithm to track the price of the Stablecoin on the exchange, then issue more coins when the price goes up, or buyback and burn coins when the price goes down. This helps to maintain stablecoin prices within a certain range.
Practical Applications of Stablecoins
Stablecoins help solve one of the biggest challenges facing cryptocurrencies today: volatility on exchanges. To find a safe haven for strong price corrections, investors can transfer assets to Stablecoins extremely quickly without having to convert to fiat (depending on the bank). goods, intermediaries).
In addition, online payment gateways for goods and services also find it difficult to accept a means of payment with fluctuating fluctuations like electronic money. Therefore, it can be considered that the birth of Stablecoin has brought cryptocurrencies to become more popular and accepted, especially in the digital space.
Several popular Stablecoins
- Tether Stablecoin (USDT): This is the most famous stablecoin today backed by fiat currency, pegged 1:1 with USD. Tether was issued in 2014 by Tether Operation Limited. Currently, USDT is available on most reputable cryptocurrency exchanges.
- Coinbase Stablecoin (USDC): This is also a stablecoin backed by 1:1 against USD. USDC launched in 2018, issued by a technology start-up (Circle). All USDC’s financial books are audited by Grant Thornton LLP – one of the top 10 auditing firms in the world.
- Binance Stablecoin (BUSD): BUSD is issued by Binance and Paxos Financial Institutions in 2019, and is approved and regulated by the New York State Department of Financial Services (NYDFS). BUSD pegged 1:1 to USD, operating on both Ethereum (ERC20 standard) and Binance Smart Chain (BEP20) platforms.
- MakerDAO (DAI): DAI is a stablecoin that uses cryptocurrency as collateral, pegged relative to USD. The unique feature of DAI is its Decentralized Autonomy (DAO) model, which is not managed by any private organization or company but still has high transparency.
- VNDC Stablecoin: VNDC is a stablecoin pegged 1:1 with VND, issued on Ethereum and BNB Chain. Currently, VNDC is widely used by Vietnamese investors thanks to its high security and good liquidity.
Nowadays, there are many other popular Stablecoins such as: TUSD, GUSD, UST, USDP, etc. Currently, the ONUS application has a list of #Stablecoins and daily rewards (Staking Daily) for Stablecoins. popular (USDT, BUSD, VNDC…) with APY up to 12.79%/year. You can safely store assets on ONUS, monitor market fluctuations, and execute buy and sell transactions.