Stablecoins, stable cryotocurrencies or fixed price cryptocurrencies, are one of the most interesting innovations in the world of crypto.
You know that the obvious feature of these currencies is their price stability. The price of these currencies is fixed in different conditions and does not fluctuate like other types of currencies.
Some well-known stablecoins, such as Tether, use a Fiat currency, such as the US dollar, as support to keep their prices stable. This has led many to believe that all stablecoins are produced with the support of Fiat currencies; If we now have Gold Stablecoin as well; A cryptocurrency whose price is always equal to the world price of gold.
What is StableCoin and why is it fixed?
Stablecoins are cryptocurrencies that use a variety of methods to keep their value constant. They are cryptocurrencies designed to provide price stability for cryptocurrencies similar to what we see in strong Fiat currencies. And at the same time, maintain the security, high speed and low cost of virtual asset transactions.
Stablecoins were originally created to minimize the impact of cryptocurrency price fluctuations on transactions and act as a bridge for mainstream financial and investment institutions; But now they are trying to make their way into decentralized finance and conventional banking, reduce payment costs and the volume of pressure.
A common misconception about stablecoins is that their value is fixed relative to all Fiat currencies.
In fact, when we talk about “stablecoin” or “stable cryptocurrency”, we should know that the concept of price stability is quite relative. For example, dollar stablecoins have a fixed value only against the dollar, but if the price of the dollar changes against other national currencies, the price of stablecoins will change accordingly.
Also, asset-backed stablecoins (such as gold) or stablecoins paired with cryptocurrencies (such as the WBTC) have a value equivalent to their back-up units, which does not necessarily mean a fixed dollar value.
In general, the value of stablecoins is fixed only in relation to a particular currency or asset. While currencies or assets backed by stablecoins themselves can have variable value compared to other units of measurement.