Cryptocurrencies came into existence in 2009, with bitcoin being the first crypto coin. Since then, there is a lot of debate and discussion about the cryptos and the underlying blockchain technology. Most importantly, the criticism came from the ardent backers of the existing traditional finance system. They feel threatened by the growing popularity of cryptocurrency and how it is going to change the present finance structure across the globe.
Some of the reasons why they don’t want cryptocurrencies into the mainstream finance structure:
- Scalability
- Cybersecurity Issues
- Price Volatility
- Lack of Inherent Value
- Regulations
Out of the points mentioned above, the naysayers are focusing mainly on the volatility. As any real-world assets back it, they call the cryptocurrency ecosystem is a bubble. To minimize the volatility of the price, the crypto world came with stablecoins.
The stablecoins are crypto-asset designed to minimize the volatility of the price by backing the crypto with real-world assets. There are different types of stable coins: Fiat-backed Stablecoin, Commodity backed stablecoin, Cryptocurrency-backed stablecoin, Seigniorage-style stable coin. A stable coin provides the benefit of a transaction as it has a fixed value relative to the underlying asset.
Many have a question of why we need so many stable coins. That’s a valid question. We have around 200+ stable coins right now. Too many options lead to confusion instead of assisting us in choosing the right one.
Now, people, after assessing all the benefits of each kind of stablecoins, Seigniorage-style stable coin is considered to be worth relying on. This type of coin is otherwise called as algorithmic stablecoin. It is based on algorithmic balancing the circulation of cryptocurrency based on the rise and fall of currency value, just like how central banks manage the currency value of a fiat currency.
No comments:
Post a Comment