What is a Stablecoin? Stable price coins

Stablecoins or stablecoins are cryptocurrencies created with the objective of maintaining a price with very little variation in the market, and they usually represent a fiat currency within a blockchain. Let's say that they are intended to benefit from the advantages of cryptocurrencies while obtaining some proven stability in their valuation when representing fiat assets.

To achieve such stability, stablecoins normally use collateralization with other financial assets, in this way they seek to keep the value of these cryptocurrencies stable in the face of the volatility of the crypto market.

Origin of stablecoins or stablecoins

Stablecoins originated because of the need to control the high volatility of cryptocurrencies. The volatility presented by cryptocurrencies in many ways is linked to continued market speculation, which is visible in the upward and downward trends experienced by crypto markets. Therefore, the creation of these cryptocurrencies allows users concerned about volatility to use cryptocurrencies. Without a doubt, the reduction in volatility would accelerate the adoption of cryptocurrencies by the general population and by businesses not specialized in this field.

Types of stablecoin backup

Fiat backrest

This is undoubtedly the most common backup method for stablecoins, cryptocurrency is generally backed by guaranteeing each token in the network in equal proportion (1:1), which means that, for each token, its value will be guaranteed by a unit of fiat money. The currencies used for its backup are some such as the US dollar, the euro or the Japanese yen.

It should be noted that this particular system has some contradictions with the concept of cryptocurrency and decentralization, since cryptocurrencies are aimed at not depending on a centralized regulatory body like fiat currencies do. Therefore, being supported by this, this contradiction is created.

Some examples of this type would be USDC, BUSD, TrueUSD and USDT. The latter is the stablecoin with the most liquidity and the most support, which is why at Reental we distribute the monthly dividends of our properties tokenized in USDT to our investors.

Commodity support

Another type of backup most used in stablecoins is undoubtedly commodity support, which involves backing a cryptocurrency using raw materials, including gold, silver, oil or diamonds. An example of this type would be Digix Gold, a stablecoin that establishes a token for every gram of gold, thus stabilizing prices.

Backed by other cryptoassets

Finally, this is another very popular type of support, although slightly more complicated than those explained above, since a complex economic system is used to stabilize the price of the currency. This method consists of backing up a token with another cryptocurrency, which is contradictory due to the instability of cryptocurrencies.

To remedy this contradiction, the token is given double support by the other cryptocurrency, in other words, we are talking about a 1:2 ratio, since even if the cryptocurrency undergoes certain variations in its market, the token will maintain its desired stability in its market.

A clear example would be DAI, a cryptocurrency backed by the value of Ether.

Public and private stablecoins

It should be noted that among the stable currencies we can find those of a private and public nature, currently they are the first to be the most popular among followers of these cryptocurrencies. Private stablecoins are issued by commercial companies, while public stablecoins are issued by central banks. A clear example of a private stable currency would be USDT owned by the company Theter, while an example of a public stable currency would be MUFG belonging to the Mitsubishi UFJ Financial Group, a Japanese bank that will link its stablecoin to the Japanese yen.

Advantages of stablecoins

• They are financially backed by real assets.
• They offer great stability to the value of their market in the face of cryptocurrency volatility
• They have great liquidity thanks to tokenization.

Disadvantages of stable coins

• The fundamentals of stablecoins have a high level of centralization.
• Although audits on these cryptocurrencies are necessary, they are costly and time consuming.

Conclusion

Reducing the volatility of the crypto market is undoubtedly one of the necessary steps for the population to make the transition to the use of cryptocurrencies in their daily lives, and it is in this scenario that stable currencies or stablecoins play a fundamental role.

But there are also other options to be able to invest without falling prey to volatility, such as the tokenization of Reental properties. The tokens we offer to our investors are backed by the value of the property itself, which implies that it has no volatility whatsoever, since the value of a building does not fluctuate aggressively, and what little fluctuates, it does so on the rise.

That's why investment in tokenized Reental real estate is another bridge for the transition to decentralized finance (DeFi). Do you want us to help you cross the bridge? If you have any questions, do not hesitate to contact us.

In order not to miss any of the opportunities we present, we recommend that you join our group of Telegram To get to know others Reentels and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.

Welcome to the new way of doing finance, welcome to Reental.