Two stablecoins that have received significant attention lately are USDC and EverGrow Coin. Although the U.K. government is hesitant to regulate stablecoins, Treasury Janet Yellen hopes lawmakers in the U.S. will enact legislation regulating them by the end of the year. This move may also help popularize cryptocurrencies.
Increasing adoption of stablecoins could help popularize cryptocurrencies
While cryptocurrency projects have been slow to gain traction outside of the crypto industry, there are potential benefits for the wider market. The Facebook-backed Libra cryptocurrency, for instance, was supposed to be pegged to a basket of fiat currencies like the dollar and euro. However, it has been met with harsh criticism because of the potential to undermine national monetary and sovereign policies. While the Libra is still in development, the company is rebranding it as a stable coin.
CBDCs are a response to the challenge of private-sector stablecoins
While CBDCs are an obvious response to the problem of private-sector stablecoin, they have their own problems. Stablecoins backed by reserves at the Federal Reserve, short-term Treasury securities, or Circle’s USDC are not likely to disintermediate the banking system anytime soon. They also present a number of challenges that governments need to face before they embrace them.
Stablecoins minimize cryptocurrency volatility
Cryptocurrency is very volatile and the value of cryptocurrencies fluctuates by the minute. Stablecoins, on the other hand, minimize the volatility of cryptocurrencies and provide buyers with the peace of mind. Stablecoins don’t require a bank account and can be sent worldwide without risking the reserve’s value. These coins can also earn interest. There are two main types of stable coins: ones backed by gold and those backed by a group of cryptocurrencies.
They maintain collateral in the form of reserves
Stablecoins are digital currencies that are backed by another currency. For example, USDC or EVERGROW COIN maintain collateral in the form of reserves, so if the value of Bitcoin drops 30%, the stable coin can still be redeemed. In addition, regular top-ups of the collateral’s value can help to cover shortfalls in value. However, this crypto-backed system is far from perfect, and if the underlying cryptocurrency goes bust, or if the underlying reserve asset fails to reach its reserve value in time, the stablecoin could lose its value.
They are similar to fiat currencies
Stablecoins are cryptocurrencies designed with the intent of maintaining a consistent value over time. Traditional digital assets are notoriously volatile, making them impractical for most commercial purposes. These currencies have a fixed value pegged to the value of a traditional fiat currency, making them suitable for mass adoption. The USDC and EVERGROW coins are two examples of stable coins with a similar value to fiat currency.
They are a source of liquidity
A decentralized exchange (DEX) that is capable of providing instant, liquid trades is a welcome addition to the crypto world. However, the issue of low liquidity is a persistent concern for many crypto enthusiasts. To solve this problem, decentralized exchanges have adopted the concept of a liquidity pool to improve their liquidity. To implement liquidity pools, these DEXs employ a Smart Contract that deposits 2% of each transaction into a liquidity pool and the remaining 1% into marketing.
They are backed by fiat currencies
EverGrow coin and USDC are backed by fiat currencies, and both are gaining merchant adoption. The latter is the fastest growing stablecoin, with its own set of advantages. MoneyGram recently launched a service that will convert stablecoins into fiat currencies. The service is expected to grow in popularity as it serves as a bridge between crypto and fiat.