It would be hard to imagine the crypto market without stablecoins. Today, these useful tokens play a vital role in many investor’s strategies. However, just a few years ago, this wasn’t the case. People had to learn to love these coins.
Stablecoins are not a new concept in the market by any means. These unique financial instruments have come a long way since their inception and you can expect to see even more development in this sector over the coming years. The stable coin journey begins much earlier than one would think.
It turns out that ever since cryptocurrencies entered the market, people have thought of ways to peg these digital assets to the value of other, more stable assets. However, accomplishing this task has been notoriously difficult for various reasons, but mainly because there is always some form of trust required in the equation. Where there is trust needed, there is room for error.
Type of Stable Coins
There are a variety of types of stablecoins in the market today. Each of these coins serves a unique purpose. As such, you may find one more useful than the other when determining the best investment strategy to fit your needs. Here are the three most common types of stable coins in use today:
These coins are backed by commodities directly. In most instances, these tokens derive value from precious metals such as gold or silver. However, there are coins that are pegged to oil and other commodities. As long as the value of the commodity held in reserve reflects the circulating supply of the stablecoin, the concept works well. Additionally, most platforms allow token holders to redeem their holdings for the actual commodity if they so choose to.
Fiat backed stable coins are the most common in the market today. This type of stable coin relies on fiat currency reserves, usually held in a bank or regulated institution to derive value. Fiat-pegged stable coins provide liquidity in the sector. They also streamline some of the core processes associated with the market.
Recently, central banks from around the globe have been exploring how to issue their own stable coins. These centralized versions of stable coins are known as Central Bank Digital Currencies (CBDC). Just this month, China launched a pilot program to study the effectiveness of its blockchain-based digital Yen.
The downside of fiat-backed stable coins is that they require an incredible amount of trust to be placed in the custodian. While some platforms provide a high level of transparency, it still remains difficult for investors to rest with a 100% assurance that their token remains pegged at a 1:1 value.
Crypto-backed stable coins are the first type of stable coin to enter the market. These tokens issue with cryptocurrencies as collateral. Unlike the other types of stable coins listed, all of the transactions for this type of stable coin occur on the blockchain. The peg is executed on-chain via smart contracts with the entire agreement residing on the blockchain.
In 2014, the world’s first stablecoin entered the market. This token was known as BitUSD. It was issued as a token on the BitShares blockchain. Interestingly, this token was pegged to other cryptocurrencies. Specifically, it was backed by an equivalent value of BitShares core token BTS. These tokens remained locked in a smart contract to act as collateral for the BitUSD in circulation.
BitUSD was years ahead of its time. Not surprisingly, the two developers behind the project Dan Larimer and Charles Hoskinson went on two start two of the top cryptocurrencies platforms in the market today, EOS and Cardona. Even more remarkable is the fact that Bit USD is still active today.
In September 2014 the world also received its first fiat-pegged stablecoin, NuBits. This coin attempted to retain its dollar collateralization through various means. However, none were very effective. At one point, the coin rose to a value of $1.20. In turn, this caused chaos in the market. Today, NuBits is still active, but only trades for around $0.05.
In November 2014 Tether USDT entered the market to little fanfare. It wasn’t until Tether made its way onto the popular exchange, Bitfinex, in 2015 that the concept began to demonstrate its usefulness. For the first time in crypto history, people had a safe-haven alternative. This token allowed investors to save on conversion fees associated with fiat to crypto trading pairs.
Notably, Tether launched a gold-backed token called Tether Gold (XAUT) recently. This token can be described as a digital asset providing ownership of physical gold (XAU) custodied in Switzerland. The token provides gold investors 24-hour access to the markets via Tether Gold/USD trading pairs.
GSX takes the stable coin concept a step further. This token can serve as a stablecoin, a cryptocurrency, and an investment vehicle. Additionally, it’s the only Quantum resistant stablecoin in the world.
GSX differs from its predecessors in some key ways. For one, GSX holders receive yearly dividends. Their tokens represent actual ownership rights in the firm’s mining operation. These rights extend over the entire scope of the mine.
For example, GSX holders are partial owners to all the land, mining equipment, and gold the company possesses. When the value of the gold or the real estate where the mine is located appreciates, GSX holders enjoy higher dividends. They also enjoy full transparency as the firm conducts third-party monthly audits and publishes the data on the blockchain.
GSX is both scalable and secure. The platform has a tps rate on par with Visa and PayPal. Additionally, you can send GSX globally for cents. GSX is available at GSXCDE.com. The firm is having a presale with discounts of up to 50% at this time.
More to Come
Stable coins are popular nowadays. One report lists over 200 stablecoins in the market currently. Of these platforms, around 77 claim to be backed by physical gold. The rest range from fiat currencies to government-sponsored oil-backed coins like the Venezuelan Petro. At this point, it’s easy to see that stablecoins are here to stay.