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What Are Stablecoins?

As we are aware, many cryptocurrencies are known for their volatility compared to fiat currencies. This is to be expected since cryptocurrency markets are relatively small. However, there is a cryptocurrency whose price depends on the value of some traditional financial asset. It can be the US dollar, oil, gold, etc. As a result, we have stablecoins that adopt digital technologies to real-life and open up the opportunity to determine and compare prices for goods and services.

Stablecoins are becoming more and more popular. However, people who are interested in cryptocurrencies and blockchain technology still have little understanding of the concept of “stablecoins” and the idea they carry.

Our today's article will help you better understand this special type of cryptocurrency and understand how they work and what problems they can solve.

Background

The first mention of stablecoins and their definition as a separate type of cryptocurrency arose back in 2012 with the emergence of the Mastercoin project, which was tethered to Bitcoin. However, the first serious project appeared relatively recently - in 2015. This is the first coin to draw the attention of the crypto community to stablecoins. We are talking, of course, about the Tether cryptocurrency (USDT). USDT was originally pegged to the US dollar at a 1:1 rate. In the process of development, the rate of Tether has not always remained stable, but over the entire history of its existence, fluctuations up or down did not exceed 8%.

The idea of tethering cryptocurrencies to popular fiat currencies was supported by other developers, and in 2016, cryptocurrency analogs of the euro and the Japanese yen began to appear.

The next direction is the creation of stablecoins, the value of which is pegged to gold. Similar projects were created for reserves of silver and other valuable metals, as well as diamonds. Later, crypto projects began to appear, representing coins backed by oil ...

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