What Are Stablecoins and USDT in Particular?

By: Will Wood

Published on:

Tether Limited Announces that USDT is Backed by Itself | by Theodore  Greenbaum | Medium

Stablecoin is a general term that indicates cryptocurrencies secured by and stabilized by fiat currencies or exchange commodities (gold or oil). Stablecoins reflect a solution to one of the main problems of cryptocurrencies – their movements. At the same time, stablecoins have one significant disadvantage – they lack people’s trust due to the decentralized nature of cryptocurrencies. Usually, all the risks connected with stable coin insurances are similar to the situation with fiat stocks. Yet, the stocks often take all the risks using the coins.

Popular Stablecoins

Despite the contra version with decentralization and risks, you can find some stablecoins on the popular stocks and exchange platforms like alligat0r. Here are the most popular kinds of stablecoins:

  • Tether is a group of coins ensured by fiat currencies. It was named after the same-name issuer – Tether Limited. The name unites several cryptocurrencies secured by the most popular global currencies within 1:1 proportions: JYPT (Japanese Yen), EURT (Euro), CNHT (Chinese offshore yuan), and USDT (USA dollar). The last one is the most popular Tether coin, and the general name indicates it, as a rule. Despite the massive share of all cryptocurrency operations (about 48%), Tether LTD has never given proof concerning the security of all coins provided by fiat currencies. In other words, no one believes that Tether Ltd. has the same amount of money compared to the number of coins emitted.
  • Gemini Dollar and Paxos Dollar (GUSD and PAX). These coins appeared as a reaction to the falling Tether trust rates. These coins were created with the assistance of Coinbase. They meet all the Wall Street requirements and regulations.
  • CACHE gold. This one uses gold as the security instrument. Even the most stable currencies are vulnerable to devaluations. The main feature of such a coin is the investment quality of gold and its decentralization. The cryptocurrency trades for 1 g of gold stored in any gold depot of the world.
  • Terra (LUNA), Ampleforth (AMPL), and Dai (DAI) – these are so-called algorithmic stablecoins. They are not secured by fiat currencies or commodities but rely on the complicated algorithms that stabilize their exchange rates.

As mentioned, Tether secured by the USD remains the most popular stablecoin. By the end of 2019, the global capitalization of Tether reached $4.1 billion.

Why Use Stablecoins?

There are several reasons to do it, but the main one is connected with the stability of the exchange rate. Stablecoins are less volatile than Bitcoin or Ethereum. Thus, they are more suitable for people new to cryptocurrencies or willing to preserve funds.

The other advantage is the simplicity of cashing cryptocurrencies. First, investors can buy stablecoins and be sure that their exchange rates can survive the ups and downs of the market. Then, they can exchange stablecoins for other currencies. Note that crypto-fiat pairs are not obligatory – you can trade USDT for Euros (for instance (https://alligat0r.com/coin-pairs/usdt/eur/info).

At last, stablecoins are more likely to meet all the regulations about cryptocurrencies, both present, and future. The government has started taking the sphere of cryptos under control. No one can predict the aftereffects for Bitcoin or Ethereum. Stablecoins are already regulated by the financial authorities.

Stablecoins appeared as the solution for many problems of the popular cryptocurrencies. Despite their controversial nature, they grow in amounts and variations. Being a pioneer of stablecoins, Tether Ltd still issues the most popular currency.