What Will Create a Stable Coin?
Everyone is talking about stable coins. Bitcoin, Tether, and Nubits, to name a few. These new coins are usable by people who wish to have value-preserving assets over cryptocurrencies like Bitcoin or Ether. While there are a few stable coins already in existence and more are on the way, none of them is truly efficient enough. The best solution to ensure stability would be to create a coin that reacts adequately to market conditions. There are over a thousand different currencies in the market. We list down several things needed for a stable coin to exit in the current volatile crypto market.
A robust legal framework
The arrival of stable coins is a good thing for crypto in general and the Ethereum ecosystem in particular. They allow more people to take advantage of the benefits of blockchain, This is without managing the volatility. There are different types of stable coins. However, they are all essentially a token you can peg to an asset of some sort at their core. That asset can be fiat currency, a cryptocurrency or a commodity like gold. The pegged asset acts as the collateral — a buffer that provides stability. One solution suggested by crypto betting sites is establishing a robust legal framework.
To be successful, a stable coin needs to have several characteristics. It must have a robust legal framework that governs its creation, issuance, and redemption of the stable coin for the underlying asset. This will give investors confidence that the stable coin issuer will redeem the coins when needed and provide recourse if they do not. The stable coin must also be easy to transfer around. Because they are digital currencies, they should be spendable anywhere in the world and traded on cryptocurrency exchanges. This means they need to be built on top of an existing blockchain platform like Ethereum or EOS.
Many stable coins must be trustless and decentralized. However, only a few of the currently available stable coins meet these criteria. There are still requirements that can help you determine if a token is a trustworthy store of value. Exchanges play a central role in how tokens operate and how they’re priced. If exchanges aren’t transparent about the tokens they list, customers cannot know if their deposits will be safe. Also, if their trades will be fair. Centralized entities provide transparency about their financials and custodianship. On the other hand, decentralized protocols must ensure transparency about the collateral backing their stable coins.
In the cryptocurrency space, there is a lot of discussion about stable coins. As the name implies, these are cryptocurrencies with stable valuations compared to fiat currencies. For example, Tether is the most well-known stable coin and remains pegged 1:1 to the U.S. dollar. You should peg a stable coin to any currency or commodity. Moreover, you should peg all current ones to fiat currencies like USD or EUR. It is relatively easy to peg a crypto asset to a fiat currency. All you need to do is hold a reserve of that currency. Moreover, have a mechanism for redeeming coins.
Roberto Villa is the CEO, Founder, Executive Writer, Senior Editor of FightBook MMA. Has a passion for Combat Sports and also a podcast host for Sitting Ringside. He’s also a former MMA fighter and Kickboxer.