For example, even getting your money out of crypto and back into your bank account as cash is risky and tax may be payable on any gains that you have made. In 2022, crypto lender, Celsius, filed for bankruptcy and owed its users $4.7 billion, meaning many investors could not get their money out and did not get anything back. Whereas central banks – like the Bank of England – issue and oversee the money we use daily, cryptos are developed and run by groups, individuals or companies. Publicly available information about some of these groups/individuals can be vague, and, as crypto activity is not regulated yet in the UK, there is no safety net if things go wrong. Unfortunately for the teams at Facebook, trust and privacy aren’t synonymous with the company’s past. In an attempt to bring trust to the Libra project, Facebook launched a not-for-profit organisation called the Libra Association, which was put in place to manage the day-to-day build and operations of the stablecoin project.
What is a stablecoin and how does it work?
Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins are more useful than more-volatile cryptocurrencies as a medium of exchange. Stablecoins may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold.
Algorithmic stablecoins can depeg if the market outperforms the algorithm or crashes too quickly. The algorithm is designed to secure the stablecoin’s currency peg to supply and demand. However, it’s not guaranteed – significant market crashes can still cause the currency to lose its peg. The issuer of these stablecoins uses an algorithm which increases or decreases the coin’s supply in response to changes in demand in order to maintain its “peg”. Investors can get exposure to stablecoins through any of the mainstream crypto exchanges or digital wallets where you can buy crypto.
It is clear that what is a stablecoin of stablecoins is urgently needed to prevent collapses like that of TerraUSD. Investors fled TerraUSD into more trusted stablecoins such as DAI and USDC, which drove the price of TerraUSD further down. This increased demand for DAI and USDC temporarily increased their price and were shortly after arbitraged back to $1. As of this writing, the combined market capitalization of TerraUSD and partner stablecoin Luna was just over $4.5 billion, indicating a market decline of approximately $14 billion.
Its inexorable rise and subsequent roller-coaster https://www.tokenexus.com/ has made millionaires of some, but left many investors nursing often heavy losses, especially in recent months. It’s why merchants can use stablecoins to accept payments at much lesser cost, and efficiently relay value among themselves anywhere in the world. It’s how you send money to someone on the run in a war zone – or the other side of the globe. It’s how value could flow more efficiently and more effectively than ever before between all the locations and places of the world. Aside from getting paid interest, users can also borrow stablecoins while using their crypto holdings as collateral. Stablecoins remove the volatility risk and allow for payments to be settled for their actual value.
What Is a Stablecoin?
Digital currencies could be made available to unbanked populations by granting access to digital wallets on smartphones. Central banks or their partner banks could provide the digital wallets. USDC is available on most cryptocurrency exchanges, although not as much as Tether’s USDT. USDC is also supported by multiple blockchains including Ethereum, Solana, Stellar, Algorand, and others. This article not only answers that question but also offers a deep dive into the different kinds of stablecoins that exist.