What Is A Stablecoin? Your Guide To Pegged Cryptocurrency

A Stablecoin is a Cryptocurrency that has its value determined by a stable asset, like the United States Dollar (USD). This makes them an attractive proposition for those wanting to dip their foot into the wonderful world Cryptocurrency without running the risk of losing a chunk of change when the market value fluctuates.

The most common Stablecoins — Gemini (GUSD) and Tether (USDT) — are backed by the US Dollar at a 1:1 ratio. This means that 1 GUSD is equal to 1 USD, as is 1 USDT. On the other hand, 1 BTC was valued at 8600 USD at the time of writing. The week before, it was trading at 8500 USD. The month before, it was worth a whopping 9500 USD. 

Related: How To Mine Bitcoin

Now we know what a Stablecoin is, we ought to turn our attention to the benefits of using one. Obviously, the first is the secured value — there's no risk associated with holding a balance. In fact, that's the main advantage. The rest is much the same as a standard Cryptocurrency: Fast international transfer speeds and low transaction fees.

Not all Stablecoins are pegged to the US Dollar, though. Some are linked to Euro, others are tied to the Great British Pound, and some are even relative to the value of commodities. So, what's the most popular? That would be Tether, which is backed by the US Dollar and has a market cap of $4.1B, followed by Paxos Standard at $260M.

The Most Popular Stablecoins

  • Tether (Capitalization: $4.1B | Pegged: 1:1 USD)
  • Paxos Standard (Capitalization: $260M | Pegged: 1:1 USD)
  • TrueUSD (Capitalization: $222M | Pegged: 1:1 USD)
  • Dai  (Capitalization: $87M | Pegged: 1:1 USD)
  • Eurs (Capitalization: $35M | Pegged: 1:1 EUR)
  • Gemini Dollar (Capitalization: $20.4M | Pegged: 1:1 USD)

So, when should you use a Stablecoin? There are several instances where it could prove to be particuarly useful, the main being to make regular payments, as noted by Hacker Noon. This is, of course, because Stablecoins have a fixed value — there's no risk of the value dropping the second the recipient receives it, leaving an outstanding balance.

However, Stablecoins aren't for everyone. Because the value remains consistent, they don't present as ripe an investment opportunity as traditional Cryptocurrencies like Bitcoin. They're also regulated in much the same way as fiat money (think: USD), and therefore are centralized, ultimately clashing with the purpose of Cryptocurrency.