August 23, 2021
Cryptocurrencies were created as a way of decentralizing the economy. They work as an investment instrument, a store of value, and a means of payment. But to be effective in any of these use cases, cryptocurrencies need to be less volatile.
One solution to this comes in the form of ‘stablecoins’.
Stablecoins are cryptocurrencies that operate on a blockchain but their price is pegged to off-chain traditional assets, like fiat currencies (dollar, euro, pound) or gold.
There are many types of stablecoins and dozens of alternatives in the market, but they all serve the purpose of providing a more stable price compared to cryptocurrencies like Bitcoin and Ethereum.
Thanks to this characteristic, merchants can accept them as a payment method without the risk of losing funds in a price swing. They can be used as a store of value to keep a savings account outside of traditional banks. And they are also useful for traders to secure their savings while trading crypto.
USDT, USDC, and other major stablecoins
The first stablecoin to show up in the market was Tether (USDT). It was launched in 2014 and claims to be fully backed by US dollars. That meant you could not only purchase them with USD, but that you could also redeem them back anytime.
USDT gained a lot of popularity during the 2017 bull run, when Bitcoin reached its previous all-time high and initial coin offerings (ICOs) flooded the market. Despite a number of new stablecoins appearing since then, USDT is still the most popular one.
Tether is ranked #5 on CoinMarketCap and it’s the most traded asset, with a daily volume of 64.5 billion USD. To put this number in context, the daily volume of Bitcoin is 28.9 billion USD.
The main issue with USDT is that, although it claims to be fully backed, the company behind it, Tether Ltd, has never released proof. The firm revealed its reserves for the first time in May 2021. According to this statement, only 75% of USDT is backed by actual dollars. The rest is backed by bonds and other assets, like precious metals and digital tokens.
USDC, the second-largest
USDC is also a stablecoin pegged to the US dollar. It was issued by Circle and Coinbase, both reputable companies compliant with financial regulators. It runs on the Ethereum, Solana, Algorand, and Stellar blockchains.
It also claims to be fully backed, and investors turned to the coin as an alternative when issues appeared with Tether. USDC is ranked #9 on CoinMarketCap, making it the second-largest stablecoin in the market.
It also comes third in daily trading volumes, coming in at $1.8 billion and trailing only behind USDT and BUSD (issued by cryptocurrency exchange Binance).
However, when the issuing companies revealed their reserves, it turns out USDC is not fully backed either. Like USDT, it is backed by commercial papers, corporate bonds, and other assets.
Other types of stablecoins
This is a common issue amongst stablecoins. To solve this, alternative models have appeared.
Perhaps the most successful is the algorithmic model, with proponents like DAI, Frax, and Ampleforth. To keep the value stable, these cryptocurrencies make use of algorithms included in their smart contracts that increase or reduce the number of tokens in circulation every time the price fluctuates
If the demand for algorithmic stablecoins grows, the protocol will issue more tokens; the algorithm burns tokens if it decreases.
Although this model may seem to be more reliable, and it’s also more decentralized, it is still not as popular as fiat-backed options. Even USDT, which has been targeted by regulators in many countries, is far from losing its prevalence.
Kirobo and stablecoins
Kirobo has added major stablecoins to its ecosystem, allowing users to make secure transactions and swaps with USD-pegged coins too.
With Kirobo, all your transactions are safe. You can send any of the supported coins using the Undo Button, set a password, and give it to the recipient. If you entered the wrong address, you can reverse the transaction and recover your money. The funds are retrievable as long as the recipient address doesn’t enter the password you give them.
This feature is also available with the P2P Swap Button. This service enables you to perform token swaps at your own chosen rates, avoiding decentralized exchange slippage.
The integration of stablecoins serves to further protect Kirobo’s users from price fluctuations and allows them to further widen their portfolios.