What are stablecoins?

Along with the rise of cryptocurrency adoption, stablecoins have become a widely discussed topic, amongst central banks, financial institutions and the broader crypto industry. While the spotlight remains on popular cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP), which are widely available and actively traded on trusted crypto exchanges like BiKi, we are seeing increasing attention placed on stablecoins. 

At its core, a stablecoin is a class of cryptocurrency designed to be to pegged to traditional fiat currencies like USD or EUR through the backing of reserve assets, with an ultimate aim of offering price stability and providing an alternative to the relatively volatile cryptocurrencies. 

In recent times, many stakeholders have begun looking into the world of stablecoins, especially central banks across the globe looking to harness the advantages brought about by blockchain technology for the national economy. 

As a result, Central Bank Digital Currencies (CBDCs) has risen to be the bridge between governments and cryptocurrency, and may signal the beginning of crypto mass adoption that will surely propel the industry to greater heights. Currently, we are seeing good progress in the development of CBDCs in China and Sweden, with implementation likely to occur in the near future, while other Central Banks in the Netherlands, Japan and Singapore are actively looking into the idea. 

While the concept of a stablecoin may seem simple – after all, it works just like the traditional fiat currency we are used to, however, not many are aware of the inner workings of a stablecoin. 

Now, how exactly do stablecoins work? Stablecoins are able to maintain low volatility as they are backed by large amounts of assets – either fiat or crypto assets. For instance, CBDCs are backed by fiat currency with a 1:1 ratio. Central Banks maintain a reserve of their fiat currency and issue the same amount of stablecoins, thus ensuring the price of these coins remains stable as they are redeemable for an equivalent in fiat currency. 

Owing to its stability, stablecoins presents several advantages: Firstly, stablecoins can be used as a medium of exchange for everyday use, as a form of payment with low transaction costs and excellent reliability. 

Moreover, it can serve to integrate cryptocurrencies into the traditional financial markets, which has been averse to cryptocurrencies due to its volatility. However, by introducing stablecoins, cryptocurrencies will be more widely accepted and recognized, eventually leading to seamless integration and growth of the industry. 

In light of such developments, BiKi is excited to see what the future holds for stablecoins, CBDCs and the wider crypto industry. Will Central Bank Digital Currencies (CBDCs) replace fiat currencies? Will we see the global adoption of USDT? Or will new stablecoins with great ideas and concepts, such as the upcoming JUST ($JST) token – which will be supported by BiKi, prove to be the success case? Only time will tell… 

BiKi wants to know what you think! Let us know your thoughts by commenting down below! 

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