What is Stable Coin?

The distributed ladger money

Stablecoins are digital currencies recorded on distributed ledger technologies (DLTs), usually blockchains, that are pegged to a reference value. The majority of outstanding stablecoins are pegged to the U.S. dollar, but stablecoins can also be pegged to other fiat currencies, baskets of currencies, other cryptocurrencies, or commodities such as gold.

Stablecoins serve as a store of value and a medium of exchange on DLTs, which enable stablecoins to be exchanged or integrated with other digital assets.

Stablecoins differ from traditional digital records of money, such as bank deposit accounts, in two primary ways.

First, stablecoins are cryptographically secured. This allows users to settle transactions near-instantaneously without double-spending or an intermediary that facilitates settlements. On public blockchains, this also allows for 24-hours-a-day/7- days-a-week/365-days-a-year transactions. Second, stablecoins are typically built on DLT standards that are programmable and allow for the composability of services.

In this context, “composability” means stablecoins can function as self-contained building blocks that interoperate with smart contracts (self-executing programmable contracts) to create payment and other financial services. These two key features underpin the current use cases of stablecoins and support innovation in both the financial and non-financial sectors.

The use of stablecoins recorded on public blockchains such as Ethereum, Binance Smart Chain, or Polygon has surged since 2020. As of the end of September 2021, the circulating supply of the largest USD-pegged public stablecoins was almost $130 billion. we show that the growth in the circulating supply of public stablecoins was especiallystrong in early 2021, averaging around 30% month-on-month for the first five months of the year.

Stablecoins are cryptocurrencies with an added economic structure that aims to stabilize their price and purchasing power. There are two classes of stablecoin: custodial, which require trust in a third party, and non-custodial, which replace this trust with economic mechanisms. Major custodial examples such as Tether, Binance USD, USDC, and TrueUSD have a combined market capitalization of over USD 10bn. On the non-custodial side, of the USD 1bn of value locked in so-called Decentralized Finance (DeFi) protocols, more than 50% are allocated to Maker’s Dai stablecoin.

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Source : Reports of Web3