Circle, Gemini, Tether, GMO Internet… all are entering the market of stable coins, determining a real hype towards this type of cryptocurrency which is much less volatile than bitcoin, ethereum and so on.
Stable coins, in fact, are cryptocurrencies linked to the value of assets and fiat currencies that are usually less subject to the sudden fluctuation of prices.
An example is Ekon, a crypto created by Eidoo that is anchored to the price of gold. Each token corresponds to 1 gram of gold, so the value of the token will correspond to the price of that gram of gold, usually an asset less volatile than any of the cryptocurrencies.
The same could be said of USDT, linked to the price of the dollar, as well as the cryptopound linked to the price of the british pound. To date, there are more than 60 stable coins of which 77% are tied to the value of assets and 54% with fiat currency as collateral (data from Blockchain Luxemburg SA).
But what are the real advantages of this new type of asset? If they are not subject to volatility, what is the point of investing in them? If 66% of the stable coins, almost all of them ERC20, are linked to the price of the dollar, there will certainly be a reason.
Volatility
Let us better explain the concept of volatility. It is one of the most interesting but also dangerous properties of cryptocurrencies.
A trader might benefit from it, but for the mass adoption of cryptocurrencies – and therefore for their use as a method of payment – this is a real problem. In fact, if the price fluctuates by hundreds of dollars in a few minutes, how do you establish a fixed price for a commodity? It is practically impossible.
A stable coin, instead, remains anchored to the price of the dollar, so the value would be equivalent and it is so much easier to use it as a method of payment.
Speed and exchange rate 0
So why not use a fiat currency? Certainly to break down territorial barriers and therefore the problem of always changing currency, for example, if you travel a lot. Has anyone ever made a trip from Switzerland to London via Italy? A nightmare. Of course, there are credit cards, but the exchange rates are really high.
The steps from the exchanges
Making a transfer to and from an exchange is sometimes a real nightmare. It takes a lot of time and very often the banks do not allow frequent fiat currency transfers to and from the exchanges.
Not only for traders, but also for those who want to buy and use crypto, it is difficult to do these operations and that’s why stable coins have been created.
Not being subject to volatility, fiat currencies can be exchanged for stable coins and kept in this form, so as to be immediately ready for use or easily converted into crypto.
In short, stable coins could really represent the “future of money”, as stated recently by the Winklevoss brothers, who recently launched the Gemini dollar, a stable coin authorized in America and linked to the US dollar.
But if these stable coins were to take hold, it could be a threat to the banks. In fact, the People’s Bank of China, which has always been hostile to cryptocurrencies, just yesterday launched itself against stable coins, calling them a threat to the banking system.
