Stablecoins have become a must in the world of cryptocurrencies. Figuring out which stablecoin is more appropriate for our needs is of crucial importance. To answer this question, we need to increase our knowledge about different stablecoins’ market caps and their advantages.
Stablecoins have definitely played a key role in the development of the cryptocurrency markets, but the question is that is it important if a stablecoin is centralized or decentralized? In your opinion, will Tether as the world’s largest stablecoin (by market cap) lose its position?
A stablecoin, as its name suggests, is a cryptocurrency with a fixed price, usually $1.
Stablecoins don’t suffer from the price volatility that other cryptocurrencies experience.
Therefore, when bearish trends begin, users convert their cryptocurrencies into stablecoins to preserve their value.
Stablecoins have two types: “centralized” and “decentralized”.
A centralized stablecoin is one whose price is pegged to a fiat currency.
The world’s largest stablecoin by market cap is Tether, whose price is pegged to the US dollar.
These stablecoins are called centralized because a centralized custodian backs them.
The company behind Tether is Tether Limited, which is run by the owners of Bitfinex crypto exchange.
By the way, decentralized stablecoins are either backed by crypto collaterals or by certain algorithms.
DAI is the world’s first crypto-backed stablecoin and has a value of $1.
DAI’s price is determined through supply and demand pattern.
When its price goes over $1, holders are motivated to sell and the price starts to decrease.
When the price moves below $1, holders are motivated to buy and it starts to increase.
Algorithmic stablecoins also use certain algorithms to keep their price stable.
Ampleforth (AMPL) and Empty Set Dollar (ESD) are two famous examples of algorithmic stablecoins.