What are stablecoin?

What is stablecoin?

Stalkers are a new class of cryptocurrencies that try to offer price stability and are backed by reserve assets. They offer the best in the world of cryptocurrencies and fiat money – the fast processing, security and inviolability of payments typical of digital currencies, as well as the volatile, volatile prices associated with fiat money.

KEY Moments

  • Stalkblocks are cryptocurrencies that try to tie their market value to some kind of external reference.
  • Stalkers can be pegged to a currency, such as the US dollar, or to the price of a particular commodity, such as gold.
  • Stalkers achieve price stability through collateralisation, as well as through algorithmic mechanisms for buying and selling a reference asset or its derivatives.

The essence of the stalkers

Bitcoin remains the most popular cryptocurrency, but its problem is related to the high volatility of its price. For example, it rose from about $ 5,950 in November 2017 to over $ 19,700 in December, then dropped by about two-thirds to $ 6,900 in early February 2018. Even its price fluctuations within a day can to be extremely large. It is common to watch the value of cryptocurrency fall or climb by over 10 percent in just a few hours.

This type of short-term volatility makes bitcoin and other popular cryptocurrencies unsuitable for everyday use by the public. In essence, a currency should act as a means of exchanging money and a way of storing a certain monetary value, and its value should remain relatively stable over longer time intervals. Consumers will refrain from using it and accepting it if they are not sure what their purchasing power will be tomorrow or in a month.

Ideally, cryptocurrency should maintain a certain purchasing power and keep inflation as low as possible. This will be enough to encourage the consumption of tokens instead of saving them. Stalkholes provide a solution to achieve such desired behavior.

Reasons for price stability

The two main reasons for the price stability of fiat currencies are: the reserves that support them and timely market actions by supervisory authorities such as central banks. As fiat currencies are tied to a fixed asset, such as gold or forex reserves acting as collateral, their price indices are free of significant fluctuations.

Even in some extreme cases where the price of fiat money can change drastically, controllers can manage the demand and supply of one currency while maintaining price stability. Most cryptocurrencies lack both major features – they do not have a price support pool and a central value control body when needed.

Stalkers are trying to bridge this gap between fiat money and cryptocurrencies. There are three categories of stalkers, and they are represented according to their working mechanism.

Stalky, secured with fiat money

Fiat cash backed stalkers maintain a fiat foreign exchange reserve, similar to the US dollar, as collateral for issuing an appropriate number of cryptocurrencies. Other forms of security may include precious metals such as gold or silver, as well as commodities such as oil. Most of today’s fiat currency-backed stalkers use dollar reserves.

Such reserves are maintained by independent trustees and regularly audited to ensure compliance is maintained. Tether (USDT) and TrueUSD are popular cryptocurrencies that have a value equivalent to one US dollar and are backed by dollar deposits.

Cryptocurrency-backed stalkers

Cryptocurrency-backed stalkers are backed by other cryptocurrencies. As back-up cryptocurrency may also be prone to high volatility, such stable coins are “oversecured”. This means that more tokens than cryptocurrencies are maintained as a reserve when issuing fewer stalkers.

For example, cryptocurrency ether tokens worth $ 2,000 can be stored as reserves when issuing $ 1,000 worth of cryptocurrency-secured stalkers. This is an accommodation for the price drop to 50% of the reserve cryptocurrency – ether . More frequent audits and monitoring increase price stability. MakerDAO’s ether-backed DAIs are pegged to the US dollar and allow the use of a cryptocurrency currency basket as a reserve.

Unsecured (algorithmic) stem blocks

The unsecured stemlecoin does not use reserves, but does include a working mechanism such as that of a central bank to keep the price stable. For example cryptocurrency type beyskoyn (cryotocurrency whose protocol is designed to maintain a stable price), pegged to the dollar, used mechanism for consensus to increase or decrease the supply of tokens as needed.

Such actions are similar to the printing of bank notes by the central bank, which maintains the prices of the fiat currency. This can be achieved by implementing a smart contract on a decentralized platform that functions autonomously.