What is Stablecoin?

Stablecoins bridge the worlds of cryptocurrency and everyday fiat currency because their prices are pegged to a reserve asset like the U.S. dollar or gold. This dramatically reduces volatility compared to something like Bitcoin and results in a form of digital money that is better suited to everything from day-to-day commerce to making transfers between exchanges.

The combination of traditional-asset stability with digital-asset flexibility has proven to be a wildly popular idea. Billions of dollars in value have flowed into stablecoins like USD Coin (USDC) as they’ve become some of the most popular ways to store and trade value in the crypto ecosystem.

What can you do with stablecoins?

  • Minimize volatility: The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot — sometimes by the minute. An asset that’s pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won’t rise or crash unpredictably in the near future.
  • Trade or save assets.:You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.
  • Earn interest :There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment in DeFi products. Stablecoins point the way toward integrating traditional financial markets with the quickly evolving DeFi industry. As a force for market stability, stablecoins present a primary vehicle for cryptocurrency adoption in loan and credit markets, while inheriting much of the utility previously reserved for only fiat currency.
  • Transfer money cheaply: People have sent as much as a million dollars worth of USDC with transfer fees of less than a dollar.
  • Send internationally: Fast processing and low transaction fees make stablecoins like USDC a good choice for sending money anywhere in the world.

How do we categorize stablecoins?

Stablecoins can be categorized on the basis of their working mechanisms:

  • Fiat-Collateralized Stablecoins

Fiat-collateralized stablecoins are, as the name suggests, backed by sovereign currency such as the pound or the US dollar. It means that to issue a certain number of tokens of a given cryptocurrency, the issuer must offer dollar reserves worth the same amount as collateral.

Commodities such as gold can also be used here. The reserves are often maintained by custodians that function independently and are audited for compliance on a regular basis. Cryptocurrencies that are backed by dollar deposits include Tether (USDT),which is pegged to the U.S. dollar at a 1:1 ratio and backed by gold reserves.

Another example is USDC,which is backed by dollar-denominated assets of at least equal fair value to the USDC in circulation in segregated accounts with US regulated financial institutions. Such accounts are attested to (i.e. verified publicly) by an independent accounting firm.

  • Crypto-Collateralized Stablecoins

The value of crypto-collateralized stablecoins is pegged to that of other cryptocurrencies. Since the underlying asset, in this case, is also a cryptocurrency, it is not conventionally safe and may also be highly volatile.

The term used to refer to such kinds of stablecoins is “over-collateralization.” It means that a relatively large amount of reserve cryptocurrencies may be needed to issue even a small number of tokens.

DAI is the most prominent stablecoin in this category that makes use of this mechanism. This is realized by utilizing a collateralized debt position (CDP) via MakerDAO to secure assets as collateral on the blockchain.

For example, if you want to buy $1,000 worth of DAI stablecoins, you would need to deposit $2,000 worth of ETH — this equates to a 200% collateralized ratio. If the market price of ETH drops but remains above a set threshold, the excess collateral buffers DAI’s price to maintain stability. However, if the ETH price drops below a set threshold, collateral is paid back into the smart contract to liquidate the CDP.

  • Algorithmic Stablecoins

Non-collateralized stablecoins are those that do not involve the use of any reserve asset. Instead, their stability is derived from a working mechanism, such as that of a central bank.

For example, the cryptocurrency base coin uses a consensus mechanism to determine whether it should increase or decrease the supply of tokens on a needed basis.

Algorithmic stablecoin issuers can’t fall back on such advantages in a crisis. The price of the TerraUSD (UST) algorithmic stablecoin plunged more than 60% on May 11, 2022, vaporizing its peg to the U.S. dollar, as the price of the related Luna token used to peg Terra slumped more than 80% overnight.

How to buy stablecoins?

You can buy USDT via MEXC website or App.

Step1: Click[Buy Crypto] on navigation bar.There are 5 ways to buy USDT,including Debit/Credit Card, Bank Transfer,P2P Trading,Quick Buy/Sell and Third-party Payment.

Step2:Choose to buy USDT/USDC/TUSD with different Fiat currencies, just select your currency under each method.

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