In this article we’ll cover what is a stablecoin, what do you need to create a stablecoin and who are the biggest players in this segment of blockchain market. Sounds interesting? Keep reading!
Stablecoin is a token that is mimicking the price of anything like currency or a physical asset. The most popular type of stablecoin is linked to US dollar and it’s made to introduce stability in the world of volatile crypto. Hence the name “stable” coin, as its price is meant to always be in 1-to-1 ratio to the US dollar.
However, there are solutions that issue stablecoins linked to other assets such as euro, gold, oil, or even real estate. So that you, as a user of a token, can expose yourself to the target asset like US dollar without leaving the chain (on blockchain). This allows to use your funds in different applications on blockchain without having to worry about the price fluctuations.
What about the most common stablecoins in the world of crypto? It so happened that in blockchains what people are lucking most is stability in the assets to use them in various application. So no wonder that the biggest are linked to the US dollar and not to any other asset. The biggest two are USDT from a British Virgin Islands company - Tether Limited, and USDC from an US company Circle.
Stablecoins are game-changers in the crypto world. They shield you from the wild price swings of most cryptocurrencies while still letting you tap into the power of blockchain platforms. As of now, the crypto market is worth $2.24 trillion, with stablecoins making up $160.349 billion, and their share keeps growing! With the blockchain market booming, you'll definitely be hearing more about stablecoins. Now, you’ll know what they are, how they’re made, who the big players are, and why they matter.
At Stay Liquid, we allow anyone using just Euros or British pounds to earn high passive income using blockchain. This wouldn’t be possible without stablecoins, as both Euros and British pounds are relatively stable in price compared to popular cryptocurrencies like Bitcoin or Ethereum.
What we do is convert your funds into a stablecoin so that you are not exposed to Bitcoin or Ethereum price fluctuations. Interested in how we do that? Read more in our article about how Stay Liquid works.
There are two most common approaches of how stablecoins are maintained fixed in price. Let’s focus on a stablecoin linked to US dollar in this example. So our goal is to issue a token that’s always exactly $1 in price. How can we achieve that?
Probably it’s wise to just issue a token with an initial price set to $1? But then, how can we ensure that the token is always priced at $1 no matter what? Well, we only can achieve this if there is someone who is always ready to buy 1 token at exactly $1 price. But wait! Then we need some money; actually, we’ll need as many dollars as there are tokens to be able to buy every single token back if there is a demand for that. So if someone wants to sell a token we’ll always buy them for exactly $1 price. Great, buying is covered!
But what if we have many people wanting to buy our tokens and we’re not ready to handle all buy requests? Probably someone else will do so for a bigger price - this is just how things normally work. For example, if you’re almost out of gas in your car and there isn’t your favourite gas station nearby - you’ll buy gas from someone else for a bigger price assuming that they’re willing to sell you the gas. The same happens here. However, imagine you’ve bought more gas than needed for a higher price. Now, if someone will ask you to sell them some of the gas you have, you’ll probably ask for even higher price.
See what’s happening? If you’re not there to sell tokens for exactly $1 price - there will be others who will sell it for a higher price. So you always want to be there to sell for exactly $1 price as well.
Phew! That was a lot! Summing up, to create a stablecoin you’ll need to first issue a token, then ensure you have enough dollars to support every single token, and lastly be always ready to buy and sell any amount of your tokens for exactly $1 price.
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