The cryptocurrency market cap has reduced significantly—from $800 billion in January 2018 to $120 billion in January this year. Such a steep decline in total market cap is one of the reasons why many people label crypto as nothing but a scam. But cryptocurrency projects remain busy, coming up with new developments that show glimpses of what a crypto-driven world will look like in the future. One of the latest innovations come in the form of stable coins, which are cryptocurrencies linked to more tangible and stable assets like the US Dollar.
Cryptocurrencies enjoyed a meteoric rise in 2017. Even people who hadn’t heard about cryptocurrencies or blockchain joined the trend, investing their hard-earned money in an attempt to cash-in big. Indeed, a lot of people profited from the year-long bullish run. But after reaching a peak of almost $20,000, Bitcoin started to decline. Its current value hovers around $3,500.
Even during the rapid increase in Bitcoin’s value, extreme price fluctuations were common and expected. Such is the nature of digital assets. This price volatility, however, also explains why many investors have pulled their money away from the cryptocurrency market. The risks prove too high, especially for cryptocurrencies that have yet to show any real-world use cases.
Many people, though, continue to believe in the future of Bitcoin and other cryptocurrencies. Some investors even embrace the price volatility of the market, considering it as an opportunity to make wealth. By leveraging crypto trading platforms like Qprofit System, these investors can make timely and informed trading decisions. Still, there’s no denying that cryptocurrencies are underperforming. Stable coins may just be the solution that the crypto market undeniably needs.
Stable coins are meant to reduce severe buyer speculation. It puts heavy emphasis on the business side of things rather than anticipating the rise or fall in the value of certain digital tokens. Initial Coin Offerings, for example, mostly involved speculation. People invested in ICOs without even knowing what the coins can do. Inevitably, this impacts the actual value of the coins. With stable coins, inflating the value of coins becomes less of an issue. By pegging a coin’s value to a particular asseStab such as the US Dollar, a more stable price can be expected.
Some Bitcoin purists, however, argue that the concept of stable coins destroys the essence of what a cryptocurrency should be. They explain that any collateralized cryptocurrency takes away the decentralized nature of the blockchain. Fortunately, new developments address this issue.
Developers are coming up with stable coins that operate under decentralized principles. For example, some stable coins are not pegged to any centralized fiat currency. Rather, they work by holding the collateral tokens in escrow and then providing incentives and rewards for people who back their collateral tokens.
Only time will tell whether stable coins can establish their position in the cryptocurrency space. While they offer a promising solution to crypto’s extreme price volatility, there may be loopholes surrounding their legitimacy and security. It’s interesting to see future developments in this field, especially if governments take a more active role in issuing stable coins themselves.