Stable cryptocurrencies
What are stable cryptocurrencies?
A stable cryptocurrency is one whose price is removed from the risks of fluctuation by being pegged to a fiat currency, a precious metal such as gold, or one of the other cryptocurrencies. Thus, although it is a cryptocurrency, it differs in principle from Bitcoin and other cryptocurrencies.
Stable cryptocurrencies can be used in many innovative solutions due to their capacity to be transferred 24 hours a day, seven days a week — they are stable, fast and low in cost for international transactions, as well as being cryptographic — and they can be easily integrated into other systems such as loyalty programmes.
Most used stable cryptocurrencies
The most popular stable cryptocurrencies tend to be those that are pegged to the US dollar. Tether (USDT), USD Coin (USDC), True USD (TUSD) and Paxos Standard (PAX) are the best-known and highest-volume stable cryptocurrencies pegged to the US dollar. Traders commonly convert their fiat into these to trade with other, non-pegged cryptocurrencies.
Companies that issue stable cryptocurrencies keep as much fiat money in their accounts as the amount they put into the market. Transparency and trust are among the most important criteria for stable cryptocurrency users — and for this reason, the companies that issue them publish transparency reports that prove the equivalence of the amount circulating in the market and the amount reserved in bank accounts.
Occasionally, stable cryptocurrencies are pegged to other cryptocurrencies rather than just fiat currencies. They are created to provide more market coverage as because fiat currencies are volatile against one another. An example of this is MakerDAO’s DAI stable cryptocurrency: running on the Ethereum blockchain, it is pegged against the US dollar but holds a basket of crypto assets in reserve.
In addition to these, some trading platforms also issue stable cryptocurrencies of their own. Synthetix (sUSD) and Reserve tokens (RSV) are stable cryptocurrencies other than DAI that use such a reserve method.
Pricing stable cryptocurrencies: why can 1 Tether be different from 1 USD?
Stable cryptocurrencies — whether in the name of dollar, euro or yen — are produced and managed by private companies. Their prices may vary depending on market conditions. Stable cryptocurrencies have become positioned as a counterweight to the volatile movements of Bitcoin and other cryptocurrencies, and are often used to overcome the cumbersome nature of fiat currencies and digitise cash.
The widespread use of stable cryptocurrencies — and the fact that unlike cash they can be transferred quickly, 24 hours a day, 7 days a week — has made them popular not only in trading and money transfers but elsewhere too: investors now take advantage of the fast re-trading potential by evaluating Bitcoin and other cryptocurrencies as stable cryptocurrencies instead of converting them into fiat money.
Although stable cryptocurrencies have lower price fluctuations against their crypto counterparts, they can be priced lower or higher than the relevant exchange rates on platforms where they are bought and sold with foreign currencies, especially during periods of sudden changes in the Bitcoin price.
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