What Are Stablecoins?

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Main Facts:

• Cryptocurrencies with a fixed or constant exchange rate are known as stablecoins.
• They are a global unit of accounts that are useful for trading, keeping money, and safeguarding an investment portfolio from the volatility of cryptocurrencies.
• Several sources, collateral assets, and value retention techniques are all possible for stablecoins.
• Researchers categorize projects depending on issues such as issuer centralization, reserve rate, asset class as collateral, and others because there is no single classification for stablecoins.

What Are Stablecoins Used for?

Popular stablecoins are a liquid asset since they are widely accessible on practically any platform and come in significant quantities.

For cryptocurrency traders and investors, well-known stablecoins serve as a worldwide medium of exchange and a place to store money. Compared to fiat currencies, they are simpler to trade in pairings with other cryptocurrencies. Stablecoins are quicker and simpler to transfer between accounts and addresses than money.

Stablecoins are also being employed in DeFi apps and act as a hedge against volatility in a cryptocurrency portfolio.

What Are The Most Popular Stablecoins?

On the cryptocurrency market, stablecoins are widely available, and most of them are available for deposits and withdrawals at crypto casinos. According to capitalization size (based on CoinMarketCap statistics as of February 2023), these are the top 10 stablecoins:

1. Tether (USDT);
2. USD Coin (USDC);
3. Binance USD (BUSD);
4. Dai (DAI);
5. TrueUSD (TUSD);
6. Pax Dollar (USDP);
7. USDD (USDD);
8. Neutrino USD (USDN);
9. Fei USD (FEI);
10. Gemini Dollar (GUSD).

How Are Stablecoins Pegged?

The most popular stablecoins in the cryptocurrency market are those pegged to the value of the dollar. Tether is the most well-known example of such a coin (USDT). The minimal variation from this pricing is 1 USDT = $1. Stable cryptocurrencies are those that are based on other currencies, such as the Singapore dollar (XSGD) or the Euro (EURS).

Some stablecoins employ fiat money as security for the cryptocurrency but can be tied to the value of the latter. In this instance, a cunning arbitrage algorithm or over-reservation is used to maintain the stability of the token price. DAI from MakerDAO is the most well-known example of a stablecoin with cryptocurrency reserves.

Moreover, you can purchase stablecoins linked to the price of gold, including Tether Gold and PAX Gold (PAXG) (XAUT). Stablecoin issuers do not impose administration fees, and cryptocurrency settlements are quicker and less expensive than conventional gold-based securities like ETFs. Those coins are not particularly common, though.

How Are Stablecoins Different?

Each stablecoin has a unique method that determines how much it is worth. Stablecoins are not categorized in a way that is commonly accepted, although they can generally be identified from one another by a few fundamental characteristics:

• Fiat or cryptocurrency is the type of asset in reserve.
• Rate of the reserve. Reserves may not only match but also exceed the value of all tokens of a specific Stablecoin in circulation;
• Price retention techniques include reserves solely (which primarily apply to centralized projects) and reserves and algorithm (this approach is used in algorithmic stablecoins).

What Are Centralized Stablecoins?

The most well-liked stablecoin issuers are centralized. They each oversee a fund that contains reserves of different assets and securities. To ensure that the declared size and makeup of the fund correspond to the actual fund, the fund is routinely independently audited.

The outcomes of these reports are made available on Tether’s website, which operates the largest USDT staple by capitalization. Tether’s reserves, according to the August 2022 audit, are made up of cash, commercial paper, foreign exchange market funds, and U.S. Treasury notes.

The audit of the Binance exchange, which is the issuer of BUSD, a stablecoin tied to the U.S. dollar, is conducted similarly.

Operators of stablecoins are legal entities registered in a significant country. The management of USDC, the second-most capitalized dollar stablecoin, is shared by Circle and Coinbase. It manages reserves, which are mostly made up of cash and short-term US government bonds. The company in New York State that oversees the BUSD coin reserves is headquartered there.

Advantages and Disadvantages of Centralized Stablecoins

One advantage of centralized stablecoins is that their price is completely guaranteed by assets with minimal volatility. They are also liquid, which means that practically any bitcoin trading platform can access them. Popular stablecoins are also useful for capital storage and settlements between parties. On cryptocurrency exchanges, it is convenient to use them as the base currency in trading pairings.

Yet, centralization is one of these coins’ weaknesses. All holders of Stablecoin could have issues if there are any issues with the company managing the reserves, including claims from regulators and reporting manipulation. Furthermore, it is not entirely clear how a stablecoin operator might employ reserves.

A good illustration is USDT. The Bitfinex exchange was accused by the New York State Attorney’s Office of using the capital of its subsidiary Tether to make up for its own loss of user monies at the beginning of 2019. The platform lost access to it after they were transferred to the Panamanian processing company Crypto Capital, which was worth roughly $850 million.

Only in early 2021 did Bitfinex pay off the majority of its debt to Tether and resolve its legal dispute. Investors filed a lawsuit against Tether at the same time, accusing it of engaging in “illegal and fraudulent” business activities. Defendant Crypto Capital entered a plea of guilty to all counts, including the charge of “shadow banking,” in April 2022.

What are Algorithmic Stablecoins?

Certain stablecoins are more stable because of cryptocurrencies than because of conventional financial instruments.

Assuring 100% value becomes difficult because the value of digital assets might change drastically. Implementing a decentralized management system and a unique computer algorithm that upholds the asset’s value in accordance with specific guidelines are two solutions to the problem.

Types of Algorithmic Stablecoins

Over-reservation, when the amount of collateral exceeds the value of the entire token issue, is one method for guaranteeing the stability of an algorithmic stablecoin. DAI is the most widely used stablecoin. It is a cryptocurrency that uses the MakerDAO technology and may be created by any user.

In this instance, he is required to put his cryptocurrencies—the dollar equivalent worth of which is greater than 100% of the DAI tokens released in exchange—on hold as collateral. This is essential to prevent the loss of all collateral in the event that cryptocurrency prices fall significantly. The user’s position is forcibly liquidated if the ratio of collateral to the issued amount of coins falls below the norm.

Although DAI is a very stable coin, its clear drawback is low capital efficiency because of excessive collateral.

Certain stablecoins are not issued by their inventors; instead, any user may do so. The acts of economic agents, not those of a centralized organization, determine the price. In this instance, stability is provided by an additional crypto-asset, which ensures the stablecoin’s liquidity.

The Terra project’s UST cryptocurrency was the most widely used algorithmic stablecoin. Holder arbitrage, or a supply and demand mechanism, keeps its price stable. The project’s native coin, dubbed LUNA, served as the security for UST’s price.

UST was the largest algorithmic stablecoin for a while, but in the spring of 2022, due to a sequence of circumstances, it lost its peg to the dollar. As a result, the entire project virtually vanished.

Ampleforth (AMPL), Fei Dollar (FEI), Frax Finance (FRAX), and Magic Internet Money are more odd price-holding models (MIM).

The Future of Stablecoins

With few exceptions, the cryptocurrency market has lost faith in algorithmic stablecoins in the wake of Terra’s failure. DAI from MakerDAO is the primary initiative that has been effective in this area.

The dominant players in the stablecoin space continue to be centralized initiatives like Tether and USDC. However, a number of nations, like the US and the EU, intended to put strict regulations on stablecoin issuers, which may make their use more difficult.

Regulators and political bodies frequently criticize stablecoins. The U.S. Treasury Department published a report on stablecoin risks in late 2021, highlighting the opaqueness of their reserves and evaluating them as a danger to investors. The Fed thinks stablecoins are dangerous because there could be issues when they are converted into cash.

Conclusions – Stablecoins & Crypto Casinos

In the realm of cryptocurrencies, stablecoins are gaining popularity and are soon turning into a standard for many crypto casinos. Stablecoins act as a crucial link between conventional fiat money and cryptocurrencies, enabling users of stablecoin casinos to make deposits, wagers, and withdrawals without being concerned about the turbulence of the cryptocurrency markets. Its consistency enables online casinos to provide a consistent gambling experience that doesn’t alter significantly from day to day, which is extremely advantageous for them.

Stablecoins can also be used as trustworthy collateral for bets, giving participants more assurance while betting and lowering the chance that their bets will be void due to market changes. This aids cryptocurrency casinos in providing a safer environment for their customers and helps them avoid potential losses in the event that the market shifts against them. Also, stablecoins like USDT or USDC conduct transactions more rapidly and with fewer fees than conventional currencies, which makes it simpler for casinos to handle payments and withdrawals in a timely manner.

Overall, stablecoins have emerged as a priceless resource for cryptocurrency casinos seeking to offer their patrons a trusted and secure playing environment. Stablecoins have the ability to completely change the online gaming business by assisting in risk reduction, speed improvement, and cost reduction. Stablecoins are becoming more widely accepted as a means of payment on platforms, therefore it is obvious that they will remain a crucial component of the crypto casino landscape for years to come.