The significantly growing popularity of stablecoins in recent years is due to the fact that this asset is an effective tool for solving the most important problem (as some believe) of the cryptocurrency market. Which one?
If you are following the crypto space, perhaps you should think about the details of the stability mechanism. The following discussion will help you learn the important features of stablecoins for a better understanding of them.
But before finding out the features of stablecoins, it is important to know what they are, and where and how they fall into the existing hierarchy of money.
Stablecoins are simply digital assets focused on managing volatility by tracking the value of assets with greater stability, such as fiat currencies.
Continuous fluctuations in cryptocurrency prices over a short period of time demonstrate a high level of volatility. But in the case of stablecoins, you don’t need to worry about volatility. You can find a lot in common between their features and other cryptocurrencies, but the most important factor responsible for the uniqueness of stablecoins is obvious in the mechanism of its stability.
You can better understand the features of stablecoins if you understand where they are in the existing hierarchy of money.
They belong to the category of money, based on claims with a guarantee of repayment of a fixed value. In addition, they also share the characteristics of privacy and decentralization.
In addition, stablecoins have the same features as constant net asset value (CNAV) funds, which means that customers can get their money back in exchange for stablecoins. So, you can clearly notice several features of a stable coin in the features taken into account when classifying them in the monetary hierarchy.
Notable features of stablecoins
Stable coins are basically cryptocurrencies with the added advantage of a stability mechanism. Thus, the characteristics of a stablecoin are very similar to the characteristics of cryptocurrencies. Before we start reviewing the important characteristics of stablecoins, let’s think about their general functions:
Transactions with stablecoins are associated with a random location of symbols, and not with the identification of the owners. You cannot link the ownership of the stablecoin, or related contracts with organizations or individuals. The assets have no connection with the company’s data or individual data, thereby increasing their ability to ensure confidentiality.
One of the most important functions of a stablecoin is related to the proposed security. You can store them in virtual wallets, and ensure their security with a private key. In addition, users can also use advanced encryption technologies for their storage devices to increase the level of security.
Ease of use
Holders can use them with new tools and services that allow faster conversion and exchange of stablecoins for fiat currency. As a result, they can provide currency financing directly through the user’s virtual wallet, using conversion and exchange solutions. An example of such a solution is BitTeam.
The absence of intermediaries is one of the important features of stablecoins. As in the case of cryptocurrencies, stablecoins eliminate commissions and restrictions related to state control, regulations and other centralized bodies. However, unlike cryptocurrencies, stablecoin owners have confidence in protection due to the support of stable assets, such as fiat currencies.
Another important feature of stablecoins is decentralization, which is one of the main points of its design. You do not have the authority to control the flow of stablecoins. In addition, the exchange of stablecoins is not limited to one place, which allows you to avoid failures after malicious hacking attempts. All stablecoin holders on the network store transaction data, thereby ensuring the distribution of transaction data across the network.
Unique features of stablecoins
Although these are common features that you can find in stable coins, you may still wonder, ” what is the most important feature of a stablecoin?”
The distinctive features of stablecoins primarily relate to aspects that help ensure stability. Here are some of the notable ways that you can identify the distinctive features of stablecoins.
The main aspect in understanding how stablecoins provide stability is to know how they work as a unit of account. The binding mechanism is very important for setting prices. Thus, stablecoins can contribute to a new approach to becoming an independent unit of account worldwide. Some of the promising examples of such applications are evident in the monetization of a fixed amount of a desired object, such as water, time, or minerals.
Your search for answers to the question of what is the most important feature of a stablecoin can end with an understanding of how a stablecoin can contribute to the adoption of cryptocurrencies. Stablecoins can serve as an effective means of exchange, while reducing the risks associated with volatility.
As a result, they can provide an effective increase in the convenience of financial operations of the enterprise. At the same time, stablecoins are also characterized by increased predictability and simplicity of cross-border transactions. The property of stablecoins to serve as a means of exchange is very important for expanding the possibilities of their long-term implementation.
Store of valuables
The list of functions of stablecoins may remain incomplete without taking into account their ability to serve as a means of saving. Stablecoins are gradually turning into savings funds over time, especially due to the limited levels of volatility associated with them.
Most importantly, its features as a means of saving ensure that they can offer flexible access to commonly used elements of saving, such as currencies, assets and commodities. In addition, stablecoins can also use their savings function to gain the trust of depositors. Therefore, banks everywhere are trying to at least regulate this class of assets, and at most – to prohibit it.
Compatible with dApps
The next important addition among the features of stable coins will relate to the flexibility of their use with other decentralized applications. Companies using smart contracts can use stablecoins to increase the predictability of operating costs.
At the same time, the compatibility of stablecoins with decentralized applications, or dApps, can also offer better prospects for infrastructure management. They offer ease of programming, and you can adapt the stable coins according to the needs of users or businesses.
Another important feature among the features of a stablecoin will relate to the accuracy of evaluating financial results. They eliminate volatility and provide a promising increase in the accuracy of evaluating the effectiveness of projects.
The entire set of functions of stablecoins shows the possibilities of using them in various ways to strengthen the prospects for a brighter future for the world of cryptocurrencies. They offer the most important feature of stability and are designed primarily to manage the volatility of digital assets. It should be noted that stablecoins are designed to work as a means of saving in the distributed registry technology or the blockchain ecosystem.
As a result, they can offer an exemption from administrative restrictions and high fees. In fact, stablecoins can serve as a bridge between conventional financial systems and DLT markets. How?
They can offer payment methods for both worlds with a large range of similarities. In addition, some features of the stablecoin also serve as a unique advantage in the scenarios of using payment simplification in traditional financial systems.
Do stablecoins have weaknesses?
One of the most important questions concerning the characteristics of stablecoins draws attention to the potential risks associated with them. It is obvious that the asset has many promising features that can completely transform conventional financial systems, processes and infrastructures. However, they also share some of the risks associated with other cryptocurrencies.
As a rule, the problems of regulatory uncertainty and cybersecurity arise as some of the notable risks associated with stablecoins. For example, the security of the algorithms used to maintain its value is very important. In addition, stablecoin is also associated with certain risks associated with the storage and maintenance of assets that support stablecoin. Thus, it is obvious that stablecoins have a fairly significant share of failures along with some interesting features.
The appearance of stablecoins caused immeasurable interest in their features and work. They presented much-needed stability in the cryptocurrency world to show how cryptocurrency can also serve as a vital tool for financial exchanges.
Notable features of stablecoins have similarities with cryptocurrencies, as you can find decentralization, privacy and compatibility with dApps. However, stablecoins differ from other cryptocurrencies by a unique binding mechanism, which makes them a means of saving.
Thus, you can easily notice that the stability mechanism is the most important feature of them. As the world gradually opens up to the concept of cryptocurrency, stablecoins can serve as a vital impetus for their adoption.