Stablecoins and its role in DeFi ecosystem How it will create impact with KnitFinance in Ecosystem
What are Stablecoins ?
Stablecoins are cryptocurrencies the value of which 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), which has made such investments less suitable for wide use in transactions.Stablecoins are cryptocurrencies the value of which 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), which has made such investments less suitable for wide use in transactions.
Designed to maintain price stability, stablecoins bridge the gap between fiat currencies and cryptocurrencies
They are pegged to traditional assets such as fiat currencies or gold, making them a less volatile alternative than typical cryptocurrencies
Promising faster transactions and lower costs, stablecoins are an attractive alternative to traditional banking
They allow traders to keep their money in the crypto ecosystem while storing them in a stable asset between trades or during volatile periods
Stablecoins are not risk-free. Some algorithmic stablecoins have depegged in the past
These are top stable coins by their market cap dated : 21 June 2022
There are four types of stablecoins:
Fiat collateralised stablecoins (the most popular)
The primary use for a stablecoin is facilitating trades on crypto exchanges. Instead of buying Bitcoin directly with fiat currency, like the US dollar, traders often exchange fiat for a stablecoin — and then execute a trade with the stablecoin for another cryptocurrency like bitcoin or ether.
Stablecoins can also act as payment alternatives. By utilising stablecoins, businesses can accept payments at a very low cost and governments could run conditional cash transfer programs easier than before. Due to its fast as thunder transaction, stablecoins can also be used to distribute monetary aid to beneficiaries worldwide.
Another use for stablecoins is to send funds across international borders. Sol Digital, a stablecoin that’s pegged to the sol, Peru’s national currency, launched on the Stellar blockchain in September. It can be exchanged between individuals in different countries without third-party fees for cross-border money transfers.
Why are stablecoins important?
The USDC stablecoin, for example, is backed by dollar-denominated assets of at least equal fair value to the USDC in circulation in segregated accounts with US regulated financial institutions. Such accounts are attested to (i.e. verified publicly) by an independent accounting firm.
Like many other stablecoins, USDC currently operates on the Ethereum blockchain. Stablecoins are free from the volatility of non-pegged cryptocurrencies, while inheriting some of their most powerful properties:
Stablecoins are open, global, and accessible to anyone on the internet, 24/7
They’re fast, cheap and secure to transmit
They’re digitally native to the Internet and programmable
What can you do with stablecoins?
1.Minimise volatility. The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot — sometimes by the minute. An asset that’s pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won’t rise or crash unpredictably in the near future.
2.Trade or save assets. You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.
3.Earn interest There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment.
4.Transfer money cheaply. People have sent as much as a million dollars worth of USDC with transfer fees of less than a dollar.
5.Send internationally. Fast processing and low transaction fees make stablecoins like USDC a good choice for sending money anywhere in the world.
Stable coins with KnitFinance
KnitFinance will be coming up with its version of wrapped stablecoins on different chains which will surely create impact on different ecosystems currently 5+ chains are under integration and counting on.
Our developers are working hard to bring new features along with this, which one you think can create an impact on the ecosystem . Do comment and let us know.