Stablecoins are significant elements in the cryptocurrency sphere, intended to reduce the volatility of digital assets and provide stability akin to traditional fiat currencies. In this article, we will explore the essence of stablecoins, their types, and their role in the financial system and cryptocurrency market.
As of 2024, we are witnessing significant developments in the regulatory landscape of cryptocurrencies. For instance, the impending Markets in Crypto-Assets Regulation (MiCA) in Europe. Improvements in infrastructure and regulatory clarity will encourage more institutional participants to enter the market, making low-volatility tokens a future trend.
Types of Stablecoins
A stablecoin, by its essence, is a form of cryptocurrency designed to maintain price stability, avoiding the significant fluctuations typical of other cryptocurrencies. It is backed by real assets, such as fiat currencies (examples include tokens like USDT, TUSD, FDUSD) or commodities (tied to gold, like the PAXG token), which help preserve its stability. Each stablecoin has its own mechanics and mechanisms to ensure the stability of its value.
It’s also worth mentioning a specific type of stablecoin – those pegged to the price of a fiat currency but backed by cryptocurrency assets. In this case, the peg to the price is maintained by an arbitrage algorithm, which keeps the stablecoin’s price at the fiat level. One example of such a token is DAI, utilized in decentralized networks.
The general essence of stablecoins is clear – in the conditions of high volatility in the cryptocurrency market, stablecoins are designed to preserve stability and predictability of price compared to traditional fiat currencies. Therefore, stablecoins are used in trading, where the token being traded is paired with another cryptocurrency.
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Currency Fluctuations
However, it should be noted that a stablecoin, like any other cryptocurrency, is subject to risks. Even the world’s most popular stablecoin, USDT, has occasionally lost its peg to the dollar during 2023. For example, in July of the previous year, its value decreased by 0.3%. Similarly, less popular tokens like FDUSD and TUSD are also susceptible to fluctuations.
For instance, TrueUSD faced issues with disclosing its reserves at the beginning of 2024, leading to a drop in its value by more than 1% compared to USDT. Although the TrueUSD company announced a complete overhaul of its auditing system a few days later, its value relative to USDT never reached parity. This illustrates how users’ trust in a specific token directly impacts its worth.
In addition to fundamental analysis, the Burvix Traders project recommends paying attention to the fees set on exchanges at the moment when choosing a stablecoin for trading, provided there are no fundamental reasons to change this approach. On major exchanges like Binance, there are often offers for free trading in specific pairs, particularly with BTC or ETH. This can significantly reduce costs, especially for high-frequency trading and long-term planning.
Conclusion
Therefore, stablecoins maintain their significant status in the cryptocurrency sphere, offering stability and predictability in value amidst high volatility. The development of the regulatory environment and improvements in infrastructure contribute to increased usage, particularly among institutional market participants. Despite certain risks such as price fluctuations and regulatory changes, stablecoins continue to play a vital role in the cryptocurrency landscape, providing stability and reliability for users of other digital assets.
The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
