Exploring the Outlook of Stablecoin Development in Virtual Arena

By Suffescom Solutions

August 03, 2022

With the continuous advancement in the digital space, there has been rapid development in digital payment systems. The improvements have been seen in competitiveness, financial inclusion efficiency, innovation, restructuring, and so on. Their adaptability in the current world shows how worthwhile they are in terms of adoption.

Apart from these characteristics, there are several illustrations of stablecoins in the crypto world. They are providing remittances and amplifying cross-border payments. It is the most remarkable form of virtual currency among traders, investors, and growing entrepreneurs.

The utilization of Stablecoins is almost similar to the Altcoins. Looking at its benefits, which we will discuss later on, people have started believing in using it. There are several transactions and payments performed by them. Many startups are in favor of stablecoin development from the best stablecoin development company. 

Suffescom is one of the best companies starting to work on crypto wallet development services in advance. Till now, our company has delivered multiple platforms to clients globally. 

This article will take you through all the essential aspects of stablecoins, encompassing types, benefits, services, and much more. Stay with us!

What Are Stablecoins?

Stablecoin is the digital money attached to a stable reserve asset such as gold or the

U.S. dollar. they are designed to lessen the volatility relative to unpegged cryptocurrencies like Bitcoin. They are apparently more sorted out as compared to the other cryptographic forms of money. There are 200+ stablecoins in the market, but only a few are among the favorites of the investors. The in-demand stablecoins are Paxos Standard, USD, TUSD, DAI, and so on. These coins are bought from any noteworthy crypto trading platform.

The fusion of conventional asset balance with digital asset scalability has proven to be a great success. A huge amount of money, probably in billions of dollars, has glided into the stablecoins. This is because it has become the most convenient way to reserve and trade value in the relevant crypto industry.

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Classification of Stablecoin Development

1. Fiat-collateralized stablecoin development

Fiat stablecoins are incorporated with the fiat currencies (issued by the govt.) such as USD, euro, pounds, etc., but majorly it is fixed on the American dollar and locks up their value at a 1:1 ratio. This signifies that every stablecoin is equivalent to a single fiat currency unit. The structure of the fiat-collateralized is simple and easy to understand. Due to the straightforward and uncomplicated layout, one can completely adopt this latest technology, especially the newcomers. 

The advantage that this stablecoin offers is that even if the value of, let’s say, bitcoin crumbles down to zero, then also, there will not be any effect on the actual currency. This means there is absolutely no fluctuation in the coin's real value, even though the whole cryptocurrency market is ruptured.

Some of the perks offered by the fiat-collateralized stablecoin are price decentralization, scalability, privacy, stability, flexibility, etc. The worth of stablecoins is greater than the bitcoin, i.e., $90 trillion (preferable money market). That’s why they are considered the “holy grail” of economic development.

Talking about the disadvantages, these are completely monitored by government agencies. There is no transparency maintained in the ecosystem. So, the users need to allow the trading on a trust basis. Additionally, there are no other means by which it could be found out whether the exchanges are following the rules or not. They are the representatives of the fiat currencies, as a consequence of which their capability is restricted.

2. Crypto-Collateralized Stablecoin Development

Crypto-collateralized stablecoin development is fully functional on the blockchain network. This maintains security and transparency at all levels. It also has open source codes and is handled and controlled in a decentralized form. This means that there is no interference from any authority. Here, the collateralization ratio is increased, i.e., 1:2 for every stablecoin.

The perks of this crypto-collateralized stablecoin are that it develops more trust among the users. They have the support of numerous cryptocurrencies that guarantee risk distribution. Improved liquidity is provided, and effectual maintenance is allowed. The other big thing is that it is a crucial element of the DeFi ecosystem. 

The disadvantage is that they are highly complex in implementation. That’s why they are not that popular among the users. Another thing is that the crypto prices are volatile and are fixed through a varied crypto reserve. 

3. Commodity-backed stable coins:

commodity-backed stablecoins have the support of various assets that are interchangeable such as metals. The most frequently used commodity in the form of collateral is gold. The other forms of interchangeable assets are oil and real estate. One who is the owner of these stablecoins implements possession over an actual asset with real value. It constitutes one of the biggest advantages over most cryptocurrencies. 

The benefit that these coins provide is excellent incentives for the users. The biggest gainers are the users that possess and use the commodity-supported stablecoins. This makes the people invest more in valuable metals. They can even repurchase the physical bars by visiting the reserves.

The only disadvantage is that these are only available to financially stable people. Although, efforts are made to make them accessible to the average income person.

4. Algorithmic-backed solutions: Last but not least in the list is the algorithmic stablecoins that are non-collateralized. There is no collateral that acts as the backing of these stablecoins. A procedure (algorithm) is followed to control the supply of stablecoins. This outlook is also called seignorage shares.

There is a huge demand for such stablecoins due to which brand new are generated to lower the price to the standard level. In the case of low coin trading, the coins are bought to make up for the increased circulating supply. 

The greatest extent of decentralization and self-reliance is maintained in this type. They are responsible for guaranteeing success. Apart from this, no bond or security is required for liquidity. Therefore, in case of any monetary damage, all the money could be lost.

So, if you are looking for superb Defi protocol development services, you can contact our team.

Working System of StableCoin

Cryptocurrency nowadays has become the hot favorite of crypto enthusiasts. People have been keen on investing their money in these digital tokens. They have the potential to generate a very high return on investment (ROI). There are diverse ways of investing in cryptocurrency. Amongst all, stablecoins are the finest means of money infusion. As we know, the stablecoins valuation is completely based on the fiat currencies. 

But before moving further, it’s essential to have a look at the difference between stable and crypto coins.

CryptocoinsStablecoins
VolatileNon-volatile
Utilized for trading on exchangeUsed as an option to fiat currencies
Non-regulatedRegulated
No backing of assetsBacked with assets
No Support of fiat currencySupport of fiat currency
High fluctuations are recordedNo high fluctuations are recored
Limited profitMassive profit 

Now, it’s time to progress towards the working mechanism of the stablecoin development.

Purchase Process: 

In this type, the user needs to send the money along with the crypto wallet details to a reliable company.  After that, the company will transfer the signal via an escrow contract to the stablecoin.on proper verification, the relative stablecoin is sent to the user’s wallet in no time.

Redeem Process:

The redeeming procedure is completely based on the type of stablecoin used. So, to redeem a stablecoin, a proper KYC(know your customer) and AML ( anti-monitoring law) need to be framed. After the scrutinization, the user becomes eligible for the redemption process.

Features of Stable Coins

Absence of Volatility: 

Stablecoins, in their truest sense, are highly stable. There are a lot of variations that take place in the monetary values. But whatever changes happen, it does not have any impact on the irregularities. Due to this characteristic, it has the capability of revolutionizing the financial industry and making them sustainable in the ever-evolving world.

Privacy: 

From the security point of view, privacy is maintained at a larger scale. It is done with not so systematic positioning of the characters. They are arranged in a haphazard manner instead of connecting it with the specification of the holder. There is no interconnection of the stablecoins with the specific data of any user or the company/organization. This helps in optimizing the abilities to induce privacy in the system.

No intermediaries: 

The essential attribute of stablecoins is the absence of intermediaries. The mediators or the arbitrators charge a part of the money, commonly known as the fees. This is the biggest shortcoming that comes with authority, certain rules implemented by the centralized authorization. There is full protection provided to the owners because of the stable valuables such as fiat currencies.

Financial inclusion:

It is a well-known fact that there is a large section of people that do not have access to financial institutions. It could be due to the lack of knowledge, or there has not been enough emphasis laid on the transaction related to the cryptocurrencies. It could also be said that people had a slight fear related to the usage of crypto coins. The inhibition is caused due to its dealing with the virtual world. The emergence of stablecoins has bridged the gap between users and financial institutions.

User-friendly mining:

The process of mining includes the creation of the new coins and verifying the transactions. It also encompasses the huge decentralized web of computers securing and verifying the blockchains. It could be done by any of the miners that are a vital  part of the network. The procedure is very easy to comprehend and implement. There are no complexities involved in the mining process. It also means that no special equipment is required to mine the currency or gold-supported cryptos.

Security

The most pivotal characteristic of the stablecoins is to provide security. The stablecoins are liable to be stored in the online wallets. These wallets are kept secured with the help of  a private key. It  means that only those will be able to access the details regarding stablecoins. The stablecoin owners have the power to get hold of the funds. Moreover, users can also utilise the hi-tech encryption technology for their storage devices to enhance security levels. 

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Gold-backed cryptocurrency:

Here, the cryptocurrency is issued in the form of gold which means that one gram of gold is equivalent to one crypto value. This type of cryptocurrency is kept secured by the custodian. This is most frequently denoted as the third party. Therefore, such a form of digital currency comes under the trading format.

Precious stones backed cryptocurrency:

Such type issues the cryptocurrency in the form of precious stones. It is done by creating a ruby, diamond, or other expensive stones to create a stability in the expensive stone market. The cryptocurrency issued is equivalent to one carat of that precious stone.

Fiat currency-backed cryptocurrency:

In this, the cryptocurrencies are fixed in the form of cash reserves. The fiat currencies like the dollar, euro, yen, yuan, etc., help in creating a stable currency assisted with assets. Here, each coin that is issued is equal to the 1USD,1Euro,1 Yen, 1 Yuan, etc.

Final Thoughts!!

The emergence of stablecoins has ignited the fascination among the crypto enthusiasts. The users are interested in the core features and the services that are going to be delivered. More than anything else, it has compelled those also who previously had an apprehension towards the cryptocurrency utilization. Stablecoins have provided the much-required stability in the crypto space by serving as the crucial instrument for the financial exchanges.

Stability is the gripping element of these cryptocurrencies that are served by the privacy, interoperability, and decentralization. These attributes are enough to encourage the users to adopt this cryptocurrency, not only specific users but also by the budding enterprises.

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