Stablecoins have revolutionized the world of cryptocurrencies in recent years, solving one of the problems that plagued virtual currencies, namely the price volatility.
On this page we try to clarify the meaning of stablecoins, in fact, if their nature as cryptocurrencies is clear, many still ask themselves what stablecoins are.
What are the stablecoins?
Stablecoins are cryptocurrencies that hold a stable price, this is the literal meaning, but let’s go deeper. The stablecoins manage to maintain a stable value and not suffer the volatility that characterizes other cryptocurrencies, such as Bitcoin and Ethereum, thanks to the anchorage to other financial assets.
A stablecoin can be anchored to the dollar, gold, but also to another cryptocurrency. In fact, its performance will depend on that of the asset with which it is connected.
The process reminds somehow the Gold Standard, when the dollar was tied to a fixed rate on gold.
Goal of the Stablecoins
The goal of stablecoins is to keep the price stable and not suffer volatility, this is quite clear. But why were they born?
The question might seem silly, but it isn’t. On the one hand, we could think of using traditional currencies directly, but in this way we would abandon the matter related to the decentralization of cryptocurrencies and other factors that they have brought.
On the other hand, there are those who argue that cryptocurrencies could be used directly without going through a further exchange with stablecoins.
The stablecoins aim to be a digital means of payment.
In this sense they differ from classic cryptocurrencies, such as Bitcoin. In fact, the detractors of the latter argue that it cannot become a reliable means of payment due to excessive volatility. It may indeed be difficult to balance prices, salaries, etc. with a virtual currency that is worth (example) $ 6,000 one day and $ 6,500 the next.
The stablecoins can therefore be the crypto solution for those who want to pay not using traditional currencies, but also without using virtual currencies that are completely unstable from the point of view of the price.
Types of Stablecoin
There are three types of stablecoins. The categories differ according to the type of assets they are linked to.
- Fiat (traditional) currencies: the stablecoins linked to traditional currencies or other assets such as gold. To support price stability, a fair amount of a traditional currency is pledged as collateral (for example, the dollar, the euro, the British pound and so on). An example can be Tether (USDT), the cryptocurrency linked to the value of the US dollar.
- Cryptocurrencies: the stablecoins linked to other cryptocurrencies. The procedure is the same as for fiat currencies, but cryptocurrencies are deposited as collateral. To overcome the volatility of cryptocurrencies, a large amount of crypto is guaranteed, so as to allow the price to stabilize even in the event of exaggerated fluctuation.
- Without any connection: these are the stablecoins not tied to any other asset. Their stable value is theoretically guaranteed by the trust of users. The demand and supply of money are regulated according to the trend in the price of the currency. In the event of an excessive rise, the supply is increased, in the event of an excessive decline, the demand for cryptocurrency increases.
Stablecoins on eTorox
eTorox is the cryptocurrency exchange of the eToro Group, which has numerous stablecoins, precisely to offer its customers a stable cryptocurrency offer, in addition to those that we can define “classic”, such as Bitcoin, Ethereum, Ripple and so on.
eTorox is regulated under license number FSC1333B by the Gibraltar Financial Services Commission, which is the Gibraltar Financial Market Supervisory Authority.
Here are some examples of stablecoins available on eTorox:
- eToro Gold (GOLDX)
- eToro Silver (SLVX)
- eToro – New Zealand dollar (NZDX)
- eToro – Japanese Yen (JPYX)
- eToro – Swiss Franc (CHFX)
- eToro – US Dollar (USDEX)
- eToro – Euro (EURX)
- eToro – British Pound (GBPX)
- eToro – Australian Dollar (AUDX)
- eToro – Canadian Dollar (CADX)
- eToro Ruble (RUBX)
- eToro Yuan (CNYX)
Can stablecoins be considered the future?
We cannot say that, we also consider that they are a relatively young product, born in 2017. It will take some time to understand if stablecoins can be a stable financial asset and an alternative means of payment to those already existing.
They could also be a sort of passage towards a new type of asset that has yet to be born, after all, the crypto world is young and in some areas it is still being tested.
Failing stablecoins can be premature, as it can be to define the the future of payments or the evolution of cryptocurrencies.