What exactly are stable coins?
Stablecoins are a category of cryptocurrency that is designed to be stable in value. Unlike other cryptocurrencies, which can be extremely volatile and subject to large price swings, stablecoins are designed to maintain a consistent value over time. This stability is achieved by pegging the value of the stablecoin to a specific high value asset, such as a currency or commodities (e.g gold). Some stablecoins are programmed with an algorithm to maintain stability in value by utilizing smart contracts to regulate the value.
What are the popular stablecoins used currently and why?
There are several stablecoins that are considered to be among the most trusted and widely used in the cryptocurrency industry. Some of the most popular stablecoins include:
- Tether (USDT): Tether is the most widely used stablecoin in the cryptocurrency industry, with a market capitalization of over $70 billion. Tether is pegged to the US dollar and is used by many cryptocurrency exchanges as the primary trading pair.
- USD Coin (USDC): USDC is a stablecoin that is backed by US dollars held in reserve. It is one of the fastest-growing stablecoins with a market capitalization of over $40 billion in the industry and is widely used by cryptocurrency traders and investors.
- Dai (DAI): Dai is a decentralized stablecoin that is pegged to the US dollar and is backed by a collateralized debt position (CDP) on the Ethereum blockchain. Dai is unique in that it is not controlled by a central authority and is instead governed by a decentralized community of users.
The different types of stable coins based on their method used to maintain stability
1. Fiat-backed stablecoins
Fiat-backed stablecoins are backed by traditional currencies, such as the US dollar, the euro, or the Japanese yen. The value of the stablecoin is tied to the value of the fiat currency, which is held in reserve to back the stablecoin. This means that the value of the stablecoin is always equal to the value of the fiat currency, minus any fees or transaction costs.
Fiat-backed stablecoins are generally considered to be the most stable and reliable type of stablecoin, as they are backed by assets that are widely accepted and trusted around the world.
2. Commodity-backed stablecoins
Commodity-backed stablecoins are backed by a physical commodity, such as gold, silver, or oil. The value of the stablecoin is tied to the value of the commodity, which is held in reserve to back the stablecoin. This means that the value of the stablecoin is always equal to the value of the commodity, minus any fees or transaction costs.
Commodity-backed stablecoins are less common than fiat-backed stablecoins, as they are more complex to set up and require a greater degree of trust between the stablecoin issuer and the holders of the stablecoin.
3. Crypto-backed stablecoins
Crypto-backed stablecoins are backed by other cryptocurrencies, such as Bitcoin or Ethereum. The value of the stablecoin is tied to the value of the cryptocurrency, which is held in reserve to back the stablecoin. This means that the value of the stablecoin is always equal to the value of the cryptocurrency, minus any fees or transaction costs.
Crypto-backed stablecoins are generally considered to be the least stable type of stablecoin, as they are subject to the same volatility and price fluctuations as the cryptocurrencies that back them.
4. Algorithmic stablecoins
Algorithmic stablecoins are a type of stablecoin that is not back backed by a fiat currency, commodity, or cryptocurrency. Instead, algorithmic stablecoins use a set of mathematical data algorithms to maintain their value and stability.
The value of algorithmic stablecoins is maintained through a system of smart contracts that automatically adjust the supply of the stablecoin in response to changes in demand.
How are stablecoins different from other cryptocurrencies?
Apart from being more stable compared to other crypto coins, an important difference is that stablecoins are generally designed to be used as a means of exchange, much like traditional currencies. Other cryptocurrencies, such as Bitcoin or Ethereum, are often viewed more as a store of value or investment asset, rather than as a means of payment or exchange.
Stablecoins also differ from other cryptocurrencies in terms of their regulatory status. While most cryptocurrencies exist in a legal gray area, with uncertain regulatory oversight and unclear tax implications, stablecoins are often viewed as a more secure option to transact any amount of funds globally without any banking partners, processing fees or time.
Utilizing DApps (Decentralized Apps) through stablecoins are often recommended owing to this factor. DApps such as DexWin, Polymarkets etc are trusted and utilized due to the provision of stablecoin utility.
Overall, stablecoins offer a more stable and reliable alternative to other cryptocurrencies, particularly for use cases that require a stable exchange rate.
Betting on DexWin using stablecoins
On DexWin, you can place bets on your favourite basketball teams and players using stablecoins like USDT and USDC. This ensures the value of your bets remain stable, unlike betting with volatile crypto tokens.
Users are protected from any exposure to the overall risk of the volatile crypto market and can rest easy knowing their funds are not going to drop in value when the overall crypto markets go through a trough.
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