In order to protect the market value of cryptocurrencies from any external effect and bringing in more stability, some cryptocurrencies are pegged to a currency of other commodities like the U.S. dollar or precious metals like gold, silver, etc. These types of cryptoassets are called as ‘stablecoins’.
Stablecoins aim to improve the efficiency of global financial services and spreading its service network to all groups around the world. Initially, they were created to be used in crypto-asset trade transactions.
Despite early stablecoins were developed just for the trading of crypto assets, today they have global objectives and broader scope on payment and asset management fields.
The main drivers behind using stablecoins are:
• Stabilisation of cryptocurrencies,
• Protecting gains from price fluctuations in crypto-asset space,
• Reducing financial risk,
• Escaping from widespread price falls without leaving the crypto-asset market.
Stablecoins generally aim to classified as “fast-cheap-easy” and reach all unbanked customers’ who otherwise could not find a suitable and profitable option in any payment services. Besides cryptocurrencies, stablecoins focus more on the asset management function and would like to be mainly positioned as global stablecoins. Price stability characteristics make stablecoins suitable especially for short and mid-term investments due to their pegged position.
Stablecoins may also include some of the following features:
• Having a fixed value to one or more commodities,
• Being redeemable on demand,
• Providing collateral for payments,
• The positive correlation between the usage of commodity and supply of stablecoins,
• Being backed by funds, traditional asset classes or crypto assets.
Issuers of stablecoins may or may not be responsible for satisfying any associated claims by end-users. A stablecoin arrangement can represent a complex ecosystem that can be structured within a single provider or distributed among many different providers.
A stablecoin agreement generally provides three main functions:
• Asset Management, and
• User interface.
There are many different types of stablecoins with all carrying individual features. Understanding their complex structure is crucial for understanding their possible implications from a risk and a regulatory perspective and their investment capacity. And this is only possible with a carefully designed and logically structured taxonomy such as the one integrated into CryptoIndexSeriesTM Platform. This proprietary taxonomy classifies stablecoins and marks those that are backed by any other fiat currency, asset, or algorithm.
For any further questions, please reach us via firstname.lastname@example.org. You can also visit our CryptoIndexSeriesTM Platform for further details and analysis or simply register at http://cryptoindexseries.com.
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