What is Stablecoins?

Smart contracts and financial incentives are the foundation for creating a stable coin. These coins can be pegged to various fiat currencies, such as the US dollar, euro, and Brazilian real, without having to store the fiat currency in the real world.

There are two categories of stable coins, algorithmic and non-algorithmic. The algorithmic stable coin, like DAI, is backed by a mathematical algorithm, while non-algorithmic coins are controlled by a centralized company.

Examples of non-algorithmic coins include USDT, controlled by Tether Limited, USDC by Coinbase, BUSD by Binance, PAX by Paxos Company.

The main problem with non-algorithmic coins is their centralization and vulnerability to management failures by the company responsible for maintaining them.

Stable coins are widely used in DeFi applications, such as Compound and Aave, as well as in centralized exchanges, such as Binance.

Tether's USDT is the third most popular coin on CoinGecko and has the highest trading volume in the crypto market.

It is important to note that stable coins, algorithmic or non-algorithmic, are innovative financial instruments that allow users to lock in their values and generate a stable coin, without relying on the stability of the fiat currency.

However, the choice between algorithmic and non-algorithmic coins depends on the preferences and goals of each user. While algorithmic coins are more secure, non-algorithmic coins are more well-known and easier to use.

It is also important to emphasize that all stable coins should be carefully evaluated before being used, taking into account factors such as security, centralization, transparency, and stability.

In conclusion, the creation of stable coins is an important advancement in the evolution of the financial and crypto market, offering more options to investors and allowing users to lock in their values and generate a stable coin.