Stablecoin development solutions are becoming increasingly important in today’s world. Though the majority of people know about stablecoins and their benefits, there are some who remain unsure of it. This article will cover the essentials on stablecoins and stablecoin development solutions in the industry.
The driving force behind Bitcoin’s creation is that it did not rely on third-party influence, reduced transaction cost and time, and provided access to users. The only downside to bitcoin was the price volatility.
Bitcoin’s price fluctuation undercut the other advantages it had. As a result, this issue led to the rise of other cryptocurrencies like Stellar and Etherum. It also led to the need for a stable cryptocurrency that remained immune to the effects of price volatility. Stablecoin development solutions came about to answer this need, and this area saw several breakthroughs in the cryptocurrency development field. One such breakthrough was stablecoin.
What is a StableCoin?
Stablecoin, as the name implies, has a stable value that does not fluctuate like other cryptocurrencies. Do note that it is not immune to volatility, and the price can shift. What makes stablecoins special is that they have the backing of fiat currencies like USD, GBP or are linked to assets like gold and other precious metals. Stablecoin’s objective is to bridge the gap between benefits provided by cryptocurrencies and the stability offered by fiat currencies. That way, people will want to invest in cryptocurrencies and unlock the benefits it offers.
Is a Stablecoin Development Solution Necessary in Today’s World?
Cryptocurrencies are global currencies that face regular market volatility. In 2017, Bitcoin’s price wildly shifted from one thousand USD to twenty thousand USD. The lack of sustainability made many investors and users long for stability in the cryptocurrency field.
Imagine paying ten USD for a meal one day and paying double that price the next day for the same meal. This issue is what small investors face with cryptocurrencies, and they cannot handle that. Hence, stablecoins came about as a new way to overcome market fluctuations and entice more investors to the industry.
Now, many might see this and wonder: What is the Need for a Fiat-Backed Cryptocurrency Over Regular Currency.
Stablecoins adhere to the primary objectives of cryptocurrencies, not belonging to a centralized bank. A decentralized currency does not rely on a central authority to bring trust to the system. The lack of a primary source reduces the additional costs involved.
Stablecoins operate on a blockchain ledger for making payments. The log records and verifies every transaction or trade on the platform without any third-party influence. Also, the stablecoin provides the security and privacy benefits a cryptocurrency has, the transparency of a blockchain, and the convenience of instant processing. Additional benefits include faster transaction speed, lower trading fees, and global accessibility.
Many enterprises and businesses see the benefits stablecoin provides and want to profit from that. This need led to the rise of the stablecoin development company. These companies specialize in providing several stablecoin development solutions aimed at unlocking the potential stablecoin has.
Presently, a stablecoin development solution deals with developing and launching one of four stablecoin types. Every stablecoin in existence comes under the following four categories.
- Fiat currency backed stablecoins
- Asset-backed stablecoins
- Stablecoins with a cryptocurrency backing
- non-collateralized stablecoins
Fiat Currency Backed Stablecoins
This stable coin development solution has the backing of a fiat currency. Tether is among the first and most popular fiat-backed stablecoin in the market. This crypto token introduced the idea of a cryptocurrency with the backing of a physical currency. Tether’s value is tied to the US dollar in a 1:1 or equal ratio.
This stablecoin development solution has a physical asset backing them. There are several stablecoins in the market with the backing of real-world assets. Digix is one example of a cryptocurrency where the token value is tied to the gold price.
This stablecoin development solution has the backing of other cryptocurrencies. The unique aspect of these coins is the specialized protocols enacted to ensure the crypto token’s value does not change. The DAI token is backed by Ether and pegged to the US Dollar. The Maker Smart Contract maintains DAI’s stability. It achieves this process by creating and destroying MKR tokens based on Ethereum’s price variations.
This stablecoin development solution does not have the backing of a cryptocurrency, fiat currency or physical asset. These coins are also known as algorithmic stablecoins. At a glance, these coins may seem at odds with other stablecoins, but they are stable. non-collateralized stablecoins operate with the same logic as other stablecoins. Here, an algorithm changes the supply volume and controls the coin’s price.
Why Invest in Stablecoin Development Solutions?
Greater Value Storage
Any stablecoin development company will tell you that stablecoins are significantly better at storing value than bitcoin or other cryptocurrencies. The reason for this is that stablecoins are not subjective to speculative markets or rampant inflation.
Faster Transaction Speed
Stablecoins operate on the blockchain, which works free from any central authority. Also, the transaction can occur on the platform at any time. Stablecoins work thanks to a smart contract escrow mechanism. This mechanism secures speeds up and streamlines transactions, settlements, and other financial activities.
Another benefit to stablecoin development is the transparency in the transaction process. Also, as stablecoins operate on a blockchain, any user on the network can view the transaction through blockchain explorer.
The most apparent advantage to stablecoins is their stability. These crypto tokens have the backing of a real-world asset, giving them immunity to cryptocurrency price volatility.
Every day, we see new changes and developments taking place in the cryptocurrency world. The introduction of stablecoins brought with it an opportunity for doubtful investors to get on board. There is no denying that stablecoins are an integral part of the crypto world and could play a critical role in the industry’s future.