Since last year, stable coins have become increasingly popular and have strengthened their position. But it seems that most user passwords or just people who are interested in them cannot understand the concept of them.

The main reason is that this concept is really complicated because most projects are not yet ready for large-scale use, or that they are generally just white papers, which is obviously difficult to understand.

What is a stable coin?

Stable coin is a cryptocurrency with stable price characteristics. This definition belongs to the founder of 1confirmation Nick Tomaino. Most of them are linked to the U.S. dollar, but some of them will eventually shift to a currency basket or index, such as the consumer price index. Therefore, expressed the dream of creating money independently of Fiat.

Cryptocurrency is revolutionary in every aspect and changes the rules of the game. They serve as an exemplary medium for communication, but their volatility poses problems for users. Because of volatility, several traditional companies have already abandoned Bitcoin as a payment instrument. In contrast, stable coins have the opportunity to become the basis for financial applications in this business unit, especially considering that some of these businesses are designed to work with smart contracts. According to several influential individuals and venture capitalists in the sector, stable coins have potential over Bitcoin. This may sound unbelievable, but after understanding the benefits of stable coins, you are likely to agree to such an assessment.

Unlike highly unstable cryptocurrencies like Bitcoin, stable coins provide people with the practical and beneficial benefits of cryptocurrency without having to worry about the disturbing price changes that are based on the real world.

The idea of the stable price of cryptocurrency appeared a few years ago, but only in the beginning of last year’s stable coins really gained momentum.

The most well-known stable coin is the Tether token, whose exchange rate fluctuates as intended by one dollar. The benefits of stable coins are obvious: minimal volatility, unlike non-stable coins, and a flexible tool to build an ideally diversified portfolio. In addition, you can quickly handle trading transactions and build up a crypto-cash position to provide liquidity among other things. Now a new stable coin is to come on the market, which is promoted by the investment bank Goldman Sachs. In addition to other investors, the bank is financing the Blockchain Start-up Circle.

Why do we need a stable cryptocurrency?

One of the most common arguments in favor of the stable coins is that they are able to guarantee that we are protected from volatility by storing them.

For example: If Bitcoin’s price is $8,000 and you sell a bitcoin-stabilized coin tied to the dollar, you will get 8,000 units of stable coins. Imagine Bitcoin’s price drop to $ 7000 in one week. But you still have a stable coin’s price of $ 8000, which can be converted back to Bitcoin at any time. Therefore, you do not lose $1000 due to volatility.

The idea of ​​so-called stable coins is simple: The price of a particular asset or currency, previously mainly Fiat currencies, is copied or simulated using a token. Ideally, this creates a parity, ie a US dollar, a euro or a yen equal to a token of the respective stable coin.

Goldman Sachs and Circle — far from coincidence

The crypto financial services provider Circle makes it possible to pay a dollar on his wallet. In return, you receive a crypto-US dollar, a so-called USD Coin — including all the benefits offered by cryptocurrencies. The interest of Goldman Sachs in the crypto-US dollar is anything but random. As early as 1913, the major US banks, most notably JPMorgan and Citibank, contributed to the creation of the US Federal Reserve. In contrast to the European central bank model, this is based on a private initiative in America. All US banks are required to be shareholders of the Fed. Decisive in this special form of shareholder form is not the dividend distributions, but the participation rights in the FED committees. If the existing monetary system is extended by the crypto component.

What is left of central bank money?

The big banks now understand that the crypto-economy will sooner or later change our financial and monetary system. Even though stable coins are only a derivative of a central bank currency, a new currency type is created. Setting standards here to retain as much power and control as possible is a sensible strategic move from the point of view of a large bank. Of course, it will take many months and years for consumers to trust the stable coins. The path is shorter than Bitcoin and other cryptocurrencies. After all, stable coins are not new currencies, just a new way of securitizing currencies. Only the issuer is new: it is the bank or the blockchain start-up and not the central bank.

Wanted: trust

If sufficient confidence-building measures and regulatory approvals are found, the Circle USD Coin could quickly achieve huge capitalization in the short to medium term. The demand for a trustworthy crypto-US dollar would be more than given globally and the inflow of funds should be correspondingly high. Stable coins like Tether have not been able to generate this trust — far too big are the doubts that everything goes right and that Tether can actually keep its value proposition. One thing is clear: Stable Coins creates new crypto-based fiat currency derivatives that have the potential to replace Fiat US Dollars & Co. in the payment and investment sectors in the future. By contrast, this has little to do with a crypto-evolution.

Marko Vidrih

@cryptomarks

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