What is a stablecoin?
Stablecoin is a price-stabilized cryptocurrency whose value is usually pegged to a fiat currency such as the U.S. dollar or a physical asset such as gold to reduce volatility in the cryptocurrency market. Stablecoin's relatively low price volatility makes it the preferred choice for many investors to hedge their risk and transfer assets in the digital currency market.
Currently, the most popular stablecoins are USDT (TED), USDC, and BUSD, which are mostly valued at the equivalent of one US dollar.
Types of Stabilized Coins and Principles of Operation
There are three main types of stabilized coins:
- Fiat Collateralized Stabilization Currency: These stabilizers are backed by fiat currencies such as the US Dollar, Euro, and other assets. Common ones are USDT and USDC.
- Cryptocurrency Collateralized Stabilization Currency: Collateralized by other cryptocurrencies to maintain a stable value, such as DAI.
- Unsecured Algorithmic Stabilized Currency: Algorithms are used to control supply to stabilize prices, represented by Ampleforth and TerraUSD.
How Stabilized Coins Work
Fiat-collateralized stablecoins are usually issued by an issuer that deposits fiat currencies of equal value in a bank and digitally converts them into stablecoins for supply to applications. Cryptocurrency collateralized and algorithmic stablecoins are stabilized through smart contracts that perform collateralization and circulation operations to automatically adjust the supply.
III. Security Analysis of Stable Currency
The security of stabilized coins depends mainly on the following aspects:
- Reserve transparencyStable currencies such as USDT and USDC regularly disclose the status of their reserves, but further transparency is needed.
- Smart Contract Security: Smart contracts control the circulation of stablecoins, so for cryptocurrency collateralized stablecoins and algorithmic stablecoins, the reliability of smart contracts is very important.
- Regulatory ComplianceAs global regulations on cryptocurrencies continue to be strengthened, the degree of compliance of stablecoins has a direct impact on their market liquidity and legitimacy.
Common Risks
- Risk of insufficient reserve assets: Some of the reserve assets of the stabilized currencies are not fully disclosed or are insufficient to support the amount of currency issued, which may give rise to the risk of insufficient reserves.
- Smart Contract Vulnerability: The smart contract vulnerability could be exploited by hackers and have an impact on the price stability of stablecoins.
- Regulatory Risk: Various countries have different policies on stabilized currencies and future changes in regulations may have an impact on stabilized currencies.
IV. Main Uses of Stabilized Currency
Stablecoins have multiple applications in the cryptocurrency ecosystem:
- Cross-border transactions: Stabilized currencies allow for quick, convenient and efficient asset transfers around the world.
- Hedging against market volatility: When the market is volatile, investors often move their assets to stable currencies to avoid losses.
- Providing Mobility: Stabilizers are widely used in the DeFi agreement as liquidity mining and lending assets.
- Payment function: Many merchants accept payments in stable currencies with relatively low handling fees.
Stabilized Coin Market Trends to 2024
With the development of regulations and popularity of digital assets, the stablecoin market is expected to continue to grow in 2024, with key trends including:
- Improvement of laws and regulations: More countries will introduce policies for stabilized currencies, which will contribute to market transparency and capital security.
- Financial Institutions Join: Mainstream financial institutions are beginning to embrace the concept of stablecoins and may issue their own stablecoins in the future to enhance the diversity of the digital currency market.
- More application scenariosStabilized coins will be used in more practical scenarios such as retail payments, supply chain management, etc.
Market Potential
With the development of blockchain technology and fintech, the application of stablecoin will become more and more widespread and become an important infrastructure for the digital asset market. The continued growth of Stablecoin will bring more capital and users to the cryptocurrency market.
Teaching and Advice on Stabilized Coin Purchase
There are many ways to buy stablecoins, and the following are suggested steps for purchasing them:
- Select Exchange: Options OKXThe major exchanges such as Binance, Huobi, etc., which usually offer major stable currencies such as USDT, USDC, BUSD, and so on.
- Fiat Money Deposit: Purchase stablecoins in fiat currency after completing KYC certification on the exchange.
- Cryptocurrency Conversion: Users who already hold cryptocurrencies can exchange them for stablecoins in other currencies directly on the exchange.
- Safe Storage: It is recommended to keep your stabilized coins in a cold wallet or a hardware wallet to enhance the security of your assets.
Frequently Asked Questions Q&A
1. What are the uses of stabilized coins?
Stabilized currencies are primarily used for hedging market volatility, cross-border transactions and payments, and are widely used to provide liquidity in DeFi agreements.
2. Is there any risk associated with stabilized currencies?
Stablecoins are subject to reserve shortfall, smart contract loopholes and regulatory risks, and investors are advised to pay attention to risk management when purchasing them.
3. How to choose a stablecoin?
Factors such as the transparency of its reserves, compliance and whether it is backed by a financial institution should be taken into account when choosing a stablecoin.
Stablecoins are an essential asset class in the digital currency market, providing investors with a stable hedge. As regulations become more sophisticated, the Stablecoin market in 2024 will become more mature and expand its use, giving investors more flexibility in managing their assets in the cryptocurrency market.
Recommended Reading:
English 
Chinese