Stable coins meaning

While cryptocurrencies are often known for their volatility, stablecoins bring newfound stability to cryptocurrency markets by allowing fiat currencies like the U. To achieve price stability of the peg, stablecoins can be backed by external assets collateralized or make use of algorithms that dynamically adjust their supply in relation to their demand at a given time algorithmic. There are two main types of stablecoins that exist: centralized and decentralized. Centralized stablecoins are traditionally backed by fiat currency in an off-chain bank account that functions as the reserves backing the tokens on-chain. These typically require a layer of trust in the custodian, although they are increasingly providing more transparency through solutions like Chainlink Proof of Reserve discussed more below.



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WATCH RELATED VIDEO: Stablecoins Explained + Top 6 List in 2021

Explained: What are Stablecoins – The Holy Grail of Fintech


Following its name, stablecoins are cryptocurrencies that are aimed to be stable and eliminate asset fluctuations. The current market offers more than 70 stable assets so building a stablecoin became a common practice.

We will also concentrate on different approaches to stablecoin development and which one suits best to your business case. The process of stablecoin development is quite complex and needs to take into account a list of important factors. Those specifications significantly impact the development process length and scope and therefore should be discussed and explained in a detailed way.

The main points to consider before creating your own stablecoin:. The stability of a price can be embodied in different ways. The most common one is backing the coin by other assets, so the emission of stablecoin is simultaneously stimulated and bounded by the finite collateral liquidity.

In this terms we differentiate:. Blaize has been sharing a thorough explanation of those in the article about types of stablecoins. Check it for a deeper understanding of the topic. However, there is a type of stablecoins that does not require any collateral, meaning algorithmic stablecoin. This helps to achieve the required decentralization, which is a big issue in terms of classic collateral-backed stable assets. Unlike previous examples, algorithmic stablecoin does not rely on any real asset while stability is modeled algorithmically.

The set of smart contracts regulates the value of such stablecoin by managing supply with applied algorithms. You can see Ampleforth as a living example of this type. This type of stablecoin requires the most complicated development toolset with previous experience in blockchain and smart contracts in particular. This is highly important when choosing the type of stablecoin you want to create and reliable stablecoin developers.

Read how to find a solid blockchain outsourcing company for such a task. After you get an understanding of what type of stablecoin your project needs, there is a place for considering the best platform for its implementation. The first thing to mention is that this is not a far when Ethereum was considered as one and only.

The market has plenty of blockchains hosting stablecoins of different types. Due to a number of advantages like low transaction costs or higher scalability the third generation blockchains are seemed to be a very attractive place for stablecoin development. However, the main question regarding choosing the right platform to launch a stablecoin should cover the demand occurring within this particular blockchain ecosystem.

To clarify this notion, you can issue a stablecoin on any existing blockchain, but the project will not gain a lot of success because of low demand or the wrong use case of the coin. That is why we recommend preparing a thorough business analysis and do not omit the discovery stage during project planning. Therefore, building a stablecoin on the Ethereum platform seems very reasonable due to a robust infrastructure and usage of ERC token standard.

Ethereum has the biggest ecosystem with high demand for custom currencies which will ensure constant and sustainable liquidity flow for your stablecoin. Additionally, Ethereum is a home for almost all DeFi protocols which significantly increases the need for stablecoins. To sum up this part, while choosing the right blockchain platform to launch a stablecoin the main focus should be turned to the supply and demand volume desired for your project.

It is worth noting, that if you want to create your own decentralized stablecoin like Dai or Ampleforth you should remember that it will be tied to the chosen blockchain. Then, the possibility of moving it to another network will either be absent or will be extremely limited. In this case, you are not limited by the choice, but it may take more time and require more skills for the development. This step requires an understanding of the needed trust mechanism you want to implement in your stablecoin architecture.

In further explanation, the trust mechanism establishes the rules under which the price for the coin stays stable and the emission supports that stable price. This is very crucial in terms of understanding the level of decentralization you want to achieve. Create your own blockchain. The first way is to create your own blockchain and make a stablecoin on top of it. You can see Celo blockchain with its cUSD stablecoin as an example of this approach. Create decentralized stablecoin. This approach means creating a stablecoin algorithm from scratch using one of the existing blockchains.

The issue of coins will be ensured by smart contracts. The trust mechanism in this case relies on the contract logic and is secured by it. So we recommend considering this development approach if you need to create a stablecoin on Ethereum.

Create trustable centralized stablecoin. This approach is used for developing the majority of stablecoins and Tether is the most prominent example. The idea is to make a simple ERC contract on Ethereum that issues stablecoins.

One should consider this approach if it needs to benefit from blockchain advantages while having guarantees of stability provided by fiats. The trust mechanism then relies on the rule that the private key of the deployer belongs to the single person script on the backend actually who has the right to generate new coins.

The full decentralization of your currency is very questionable in this case. Adoption through the intermediate case. Another approach to stablecoin launch can be its adoption through the intermediate solution. This case was perfectly performed by Binance exchange. BUSD Binance initial stablecoin was created inside the exchange as an intermediate coin in order to match trading pairs. Then it was moved to BinanceChain through the creation of an app that wraps fiat and emits stablecoins in exchange and now acts as an independent stablecoin.

Use existing cryptocurrency. As an alternative approach to the listed above, we can mention re-using existing cryptocurrency as a base to build an Ethereum stablecoin or any other. The requirement for stablecoin usage within your business-case does not always mean the creation of the coin from scratch. If you are building a dApp on Ethereum , you can re-use one of the existing currencies, since addresses of the most popular stablecoin contracts are known and trustable. Then, the integration of existing stablecoin projects like DAI seems very reasonable.

We have been sharing our experience on blockchain forking in the previous article. Find out more information about starting your own cryptocurrency there. Ready to launch your own stablecoin project? One of the most crucial basis of initial stablecoin development is ensuring the sustainable liquidy flow for this stablecoin. This point primarily deals with the blockchain platform and cryptocurrency you want to use as a collateral.

In further explanation, liquidity maintenance stays for the ongoing ability of minting stablecoins and also sending and receiving assets which your protocol uses as a collateral. Therefore, the main question you need to answer is will you have a constant demand for the kind of stablecoin you want to create? Because if there is no demand, the project will end up useless. As it is shown, the process of creating stablecoin can be quite complex and require a lot of previous experience in the majority of cases.

In this part, we will use EthUSD stablecoin project development as an example to show and explain how to create stablecoin on Ethereum. As you know already, one of the vital things for launching a successful stablecoin project is to get an actual demand for a certain coin. Therefore, this type of development requires a lot of points into consideration during the discovery stage, for instance, the choice of target blockchain or its eventual development from scratch.

The establishment of the desired trust mechanism with the algorithm for backing in crypto calculation, emission, total cap, etc. It has significant importance in terms of defining the level of decentralization we described above.

Once all of the above-mentioned points were established we can start the development process. In this example, the second approach was applied where Ethereum smart contract is responsible for coin issuing. For this type of development your project will need blockchain developers with experience in Solidity and a prior knowledge of Ethereum toolset. Find out more about smart contract audit importance in this article.

As soon as the development and testing is completed you should initiate the launch of your stablecoin. The first thing to do is to start the contract in the testnet Ethereum test nets in our example. After fixing eventual troubles you should prepare a few additional important things. Though, before delivering your stablecoin to the mainnet prepare initial liquidity and coins minting plan e.

This will eliminate occasional inconveniences and possible hacking attacks. Also consider Curve. The cost of creating stablecoin varies considerably regarding the type of development and trust mechanism the client chooses. As you know already, this raises a lot of questions crucial for establishing the project scope. That is why we recommend starting with the discovery stage and preparation of thorough SRS and technical specifications by the blockchain developers team.

See how Blaize team works on SRS and technical task preparation during the business analysis of our projects. Defining the general scope of work, we can say with confidence that a collateral-backed stablecoin mechanism is relatively simpler. Therefore, it is less time-consuming to design the architecture and develop a stablecoin using a third development approach with a centralized trust mechanism. For its part, the creation of algorithmic stablecoin mechanisms will need high-skilled blockchain specialists that are able to create complex modules of code.

The choice of a blockchain platform to launch a stablecoin and its further integration are also should be taken into account. In this article, we have reviewed the most common approaches for stablecoin project development and have shown an indicative example of creating a stablecoin on Ethereum. The Stablecoin mechanism has proven its usability through a variety of applications.

There are some notable advantages of stablecoin we cannot miss:. There you can see just several use cases for stablecoin adoption, so the list can be extended by a few more. So if you still have questions regarding starting a stablecoin project talk to Blaize experts to dispel any doubts or arrange a meeting to start the project ASAP.

Expert on decentralized finance, governance, policies and blockchain technologies. How to Create a Stablecoin on Ethereum



Explained: What Are Stablecoins And How Do They Work

Stablecoins are gaining popularity in the recent years. In certain countries like Brazil, people are preferring stable coins to their national currencies. That is during uncertain economic conditions. What are Stablecoins? Stablecoins are a new group of cryptocurrencies. The name itself gives the meaning which says stable.

Stablecoins are cryptocurrencies that are pegged to “stable” assets like the US dollar. For example, one USDT is equal in value to one US dollar.

What are stablecoins and why do they matter?

Main Takeaways:. Stablecoins bridge the world of cryptocurrency and fiat currency together as their prices are tied to a reserve asset like the US dollar or gold. Stablecoins have also been very popular as a way to store and trade value in the crypto economy. Find out all you need to know about stablecoins and how you can purchase them with Binance. In a market that is no stranger to volatility, sometimes stability is a much appreciated and needed asset. A cryptocurrency with a twist, stablecoins combine traditional asset stability with digital-asset flexibility. Cryptocurrencies like Bitcoin and Ethereum offer many benefits, including decentralization, intermediary-free transactions and much more. However, one of cryptocurrency's key drawbacks is that they are notoriously volatile. Meaning the prices are unpredictable and have a tendency to fluctuate wildly. In a nutshell, stablecoins tackle price fluctuations by binding the value of cryptocurrencies to more stable assets like fiat currencies.


What Is the Best Stablecoin? 7 to Pick From

stable coins meaning

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Stablecoins could be super useful — 'if they’re properly regulated,' according to Fed Chair Powell

Bitcoin Basics. How to Store Bitcoin. Bitcoin Mining. Key Highlights. A stablecoin is a digital token that is intended to maintain a constant peg with some other asset, usually a fiat currency. Stablecoins are often issued on their own blockchain or an existing blockchain and are almost always backed by a centralized party.


How to Create a Stablecoin on Ethereum

Stablecoins are an attempt to create a cryptocurrency token with a stable price—their stability commonly achieved by pegging the token to an asset such as gold or fiat. By being backed by more traditional investments, the market has greater confidence in their price. For this reason, stablecoins are often the go-to option for both institutional and retail users of cryptocurrencies. Bitcoin is too volatile. The price fluctuation makes Bitcoin unsuitable for daily use.

Definition. A stablecoin is a type of hybrid cryptocurrency whose value is tied to a stable asset like USD or gold.

JavaScript is currently disabled. This website is best viewed with JavaScript enabled, interactive content that requires JavaScript will not be available. Despite achieving some name recognition, cryptocurrencies are not widely used for payments.


See More. Although crypto-assets do not currently pose a material risk to global financial stability, vigilant monitoring is needed in light of the speed of market developments. Should the use of crypto-assets continue to evolve, it could have implications for financial stability in the future. Such implications may include: confidence effects and reputational risks to financial institutions and their regulators; risks arising from direct or indirect exposures of financial institutions; risks arising if crypto-assets became widely used in payments and settlement; and risks from market capitalisation and wealth effects.

This is about nothing less than the regulation of crypto assets and their ecosystem in the EU, i.

The cryptocurrency has faced strong regulatory headwinds since it was first announced in June A stablecoin is a class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies. This kind of short-term volatility makes Bitcoin and other popular cryptocurrencies unsuitable for everyday use by the public. Essentially, a currency should act as a medium of monetary exchange and a mode of storage of monetary value, and its value should remain relatively stable over longer time horizons. Users will refrain from adopting it if they are not sure of its purchasing power tomorrow. Ideally, a crypto coin should maintain its purchasing power and have the lowest possible inflation , sufficient enough to encourage spending the tokens instead of saving them.

Popular stablecoin Tether, is commonly traded on markets for cryptocurrencies. By Jamilah Lim 8 December, But are stablecoins really that stable?


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