Many exchanges offer Tether (USDT) and USD Coin (USDC) in the markets. USDT и USDC are stablecoins and in this post we will explain what stablecoins are and how they work.
What is a stablecoin?
In short, a stablecoin is a cryptocurrency that provides price stability.
The prices of Bitcoin or other cryptocurrencies often suffer from high volatility... This means that the price of Bitcoin or other cryptocurrencies can rise or fall very quickly. This makes Bitcoin unsuitable for everyday use and payment for goods and services. From March to April 2020 alone, the price of Bitcoin increased by 35%.
Stable coin keeps inflation at a minimum... Most stablecoins maintain a price equal to fiat currencies. For example, prices Tether (USDT) и USD Coin (USDC) always equal 1 USD... They allow for little inflation or deflation, but we're talking about a difference of less than 1% in 24 hours.
A stablecoin can be pegged not only to fiat currencies, but also to other cryptocurrencies or exchange commodities such as gold, silver, etc.
Stable coins provide two best sides - high speed of transactions anywhere in the world and price stability. They are great for everyday use and as "Safe island" when there are large fluctuations in the markets.
How do stablecoins work?
Each stablecoin is backed by fiat currency, cryptocurrency, or exchange commodities such as gold or silver.
Take USDC as an example. USD Coin is pegged to fiat currency - the US dollar. It means that USDC supported by the US dollar at a 1: 1 ratio.
USDC is backed by the US dollar. For each USDC, $ 1 is held in the bank account. This allows the price to be stable and not fluctuate.