Everything you need to know about stable digital currencies

yousef
economy
yousef2 January 2024Last Update : 2 months ago
Everything you need to know about stable digital currencies

Stable digital currencies are a type of digital currencies, but they differ from other digital currencies in that they have a fixed value, while the latter are volatile with market fluctuations. In the volatile digital currency market, there must be digital currencies with a fixed value, and they are backed by cash or another reserve asset that enables traders. Even traders can save their money through it so that it does not fluctuate with market fluctuations. Below we will explain in detail stable digital currencies and how they work.

What are digital stable currencies?

Stablecoins are a type of digital currency with a fixed value relative to another type of asset, often fiat currencies, but they may also be linked to precious metals or other digital currencies. They are generally characterized by being more stable than other digital currencies, which makes them mainstream. For use as an intermediary in digital currency-based transactions, such as trading digital currencies or transferring amounts between users.

How stable digital currencies work

Unlike most digital currencies, stable currencies are not considered attractive assets for investment, but the stability of their value makes them practical for a number of uses, and overcoming obstacles related to the difficulty of converting between cash and digital currencies, especially with regard to the relatively long times that trading platforms take to deposit cash amounts, in addition to cases of… These platforms rarely allow near-instant deposits from local bank accounts, such as the Easy Funding and Boltt options on Bit Oasis.

Purposes of using stable digital currencies:

This type of currency is used for two main purposes, which are as follows:

Cross-border transfer Unlike other digital currencies that may lose or gain additional value between the dates of sending and receiving transfers, the stability of the price of stable currencies makes them suitable for international transfers, as their transfers are made at high speeds and at a low cost compared to the costs of making the same transfers through traditional financial institutions, in addition to It allows you to hide the identity of the sender and the receiver.

Investing in digital currencies

Many traders rely on stable currencies linked to major fiat currencies (such as the US dollar and the euro) to trade other digital currencies, because of the speed they allow in conducting transactions, especially when purchasing a currency that relies on the same blockchain as the stable digital currency, as is the case with many currencies. Based on the Ethereum blockchain.

The most prominent digital stable currencies

The following currencies are among the most important types of stable digital currencies, and the following is an overview of each of them: Tether (USDT) The Tether currency is based on the Ethereum blockchain, and its value is equal to 1 US dollar, and in issuing new currencies it relies on depositing cash in currency reserve accounts, so that Issuing an amount of Tether equal to the deposited funds after deducting fees, and when the owners of the Tether currency exchange it back for cash, the exchanged currencies are deleted from circulation. Tether is the first and largest stable currency in the world, and its market value at the end of 2022 reached more than $77 billion. In the same way, the Tether Foundation also issues the gold-linked Tether Gold (XAUT), with one Tether Gold coin equal to an ounce of gold.

USD Coin (USDC) is a currency issued by the trade consortium “Centre Consortium” and operates on several blockchain networks, including Ethereum, Algorand, Avalanche, Solana, and Tron. USD Coin is created with a value of 1 US dollar for the amounts deposited by users. In its bank account, relying on a smart contract on the Ethereum blockchain, it can be exchanged for US dollars.

Terra stablecoins

The Terra blockchain provides a number of stablecoins that are pegged to other fiat currencies such as the US dollar, the euro, the Japanese yen, the British pound, and others. Unlike most other stablecoins, the Terra stablecoins rely on terra (LUNA) reserves, which are burned or removed from circulation.

When converted into one of the stable currencies, along with reserves in other digital currencies, especially Bitcoin. Dai (DAI) is a stablecoin issued by the MakerDAO, a decentralized autonomous organization that also issues Maker (MKR), and tries to keep its value as close to the US dollar as possible, and relies on a smart contract on the Ethereum blockchain.

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