What are Stablecoins?

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What are Stablecoins? Blog Image

Overview:

The United States Congress recently made an attempt to create a legislative framework for the increasingly popular stablecoins.

About Stablecoins:

  • They are cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity, or financial instrument.
  • Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin (BTC).
  • Unlike cryptocurrencies like Bitcoin, stablecoins’ prices remain steady, in accordance with whichever fiat currency backs them.
  • Eg: USDC stablecoin is backed by dollar-denominated assets.
  • Benefits:
    • They are open, global, and accessible to anyone on the internet.
    • They’re fast, cheap and secure to transmit.

What is Cryptocurrency?

  • Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds.
  • These currencies operate independently of a central bank.
  • The economic transactions underlying cryptocurrency are decentralized, distributed and disbursed.
  • The first and most famous cryptocurrency, bitcoin was introduced in 2009.
  • Technology:
    • Most cryptocurrencies are built on blockchain technology.
    • Blockchain is a decentralized and distributed database on a peer-peer network which works on the basis of a consensus mechanism involving every node (computer) on the network.
    • Blockchain is a peer-to-peer distributed network that records a public history of transactions without actually recording identities of the parties or the transaction details.

 


Q1) What is USDC?

USD Coin (USDC) is a digital currency that is fully backed by U.S. dollar assets. USDC is a tokenized U.S. dollar, with the value of one USDC coin pegged 1:1 to the value of one U.S. dollar. The value of USDC is designed to remain stable, making USDC a stablecoin.

Source: How US draft bill on crypto will help stablecoin holders and issuers