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What Are Stablecoins?

by Alexander Malygin

4 min read

Cryptocurrencies were supposed to become independent means of payment. However, volatility makes this process quite difficult. The solution is stablecoin — a special type of digital coin that is utilized as a stable medium of exchange, allowing to fix profits and keep the balance from drops during the shifts in currency value.

The nature of stablecoin

In 2014, in connection with the digital transformation of the financial sector, stablecoins emerged. They represent a form of cryptocurrency that still has all the main advantages like low cost of transactions, high speed of payments, anonymity, etc. Most importantly, it is devoid of high volatility.

Resilience to price fluctuations of stablecoins is achieved by pegging them to various assets classes, like fiat currencies, precious metals, digital currencies, or by reproducing some elements of monetary policy used by central banks on a decentralized basis (concept of Seigniorage Shares).

In January 2021, there was about $30bn worth of coins in circulation. By October, this had risen to more than $130bn. This fact indicates the significant potential of stablecoins for making transfers and payments. Nowadays, stablecoins are becoming more often used for trading and conducting large transactions.

When are stablecoins used?

Stablecoins provide the same value to investors, traders, and exchanges as fiat money. The most popular stablecoins are USD Tether (USDT), True USD (TUSD), Paxos Standard (PAX), USD Coin (USDC), and Binance USD (BUSD).

During a period of volatility, non-cryptocurrency investors allocate part of their portfolios in cash, bonds, or money market funds, while crypto investors switch to stablecoins. It allows them to move faster and confidently between transactions. As the market goes through different cycles, many choose to hold stablecoins for some time. For example, during a bull run, investors and traders find it wise to record some profits and convert those profits to stablecoins.

In general, stablecoins serve as the primary vehicle for day-to-day transactions as well as other applications. Such applications could include their use to trade goods and services across blockchain networks, decentralized insurance solutions, financial derivatives contracts, financial applications such as consumer loans, and prediction markets.

Such transactions are only possible when the transaction currency remains stable.

Part of the current financial architecture

International payment systems strive to maintain a dominant position in the payment services market, using their advantages in the form of brand awareness, user confidence and established infrastructure to compete with alternative financial platforms that are gaining popularity.

In March 2021, Visa became the first international card payment system to conduct transactions using the USD Coin (USDC) stablecoin through the blockchain platform. As Jack Forestell, executive vice president and chief product officer of Visa, noted, it “…marks a major milestone in our ability to address the needs of fintechs managing their business in a stablecoin or cryptocurrency, and it’s really an extension of what we do every day, securely facilitating payments in all different currencies all across the world.”

In early 2021, Mastercard announced the start of work with stablecoins: customers will be able to use them for both investments and transactions. It also partnered with leading digital currency companies across the Asia Pacific to launch the region’s first crypto-linked payment cards.

Where to buy stablecoins?

Many aspiring investors and traders start their crypto journey by buying stablecoins. To make it easier for you, start by choosing an exchange. There are plenty of crypto exchanges around the world to provide you access to thousands of cryptocurrencies. Almost all of them have at least one type of stablecoin. To find the one that suits you, the Finscanner team has prepared a set of excellent major exchanges for you to start with:

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  • ( Exchange) — an exchange registered in Saint Kitts and Nevis. Here one can trade more than 200 digital assets. As main advantages, the platform highlights that it is secure, fast and that they have dedicated 24/7 support.
  • OKEx — a cryptocurrency exchange created in 2014 by Chinese developer Star Xu. It makes it easy to buy, sell, or trade cryptocurrencies by offering over 400 trading pairs, including pairs with fiat. OKEx offers advanced financial services as well as excellent guides for anyone new to crypto. There are investment programs, a referral program, and additional bonuses.
  • Binance — a crypto exchange founded in 2017 by Changpeng Zhao and registered in the Cayman Islands. It is the largest cryptocurrency exchange in the world in terms of trading volume, with more than 1.4 million transactions per second. The exchange strictly adheres to US regulations, is compatible with multiple devices, and provides safe and convenient trading.

Find more crypto exchanges and wallets at the Finscanner marketplace to buy your first stablecoin, send, receive or exchange your assets, and explore other functions as well!

Feel free to contact us directly today to get a consultation!

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