Everything You Need To Know About Stablecoins & Its Benefits

By Author: Nitro Exchange
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Blockchain technology has rapidly transformed the way businesses operate and over the years, it has disrupted major industrial sectors. It provides decentralized, secure and faster transactions of cryptocurrencies- a digitized form of physical currencies. With more than 200 crypto assets currently dominating the financial market, these digital coins were birthed to replace the complications associated with fiat currencies.
While conceptually fit to be the ideal form of money, cryptocurrencies are considered volatile.
Let’s understand why.
The cryptocurrency pricing is governed by the laws of supply and demand — if people wish to buy, prices increase; if people wish to sell, the prices decrease. Apart from this, there are two major factors that contribute to market fluctuations.
The first factor includes its small market size as compared to the established forms of currencies. With an overall capitalization value of $267 billion, the crypto market size is still insignificant to the US stock market capacity of $28 trillion or to that of the gold market with $7.9 trillion bandwidth. This implies that even a small movement of crypto currencies can considerably have a very large impact on its price.
Let’s say if an investor decides to sell $100 million in gold, it would barely create any difference in the gold pricing. However, if a similar amount is used to sell Bitcoin, it would destabilize the entire crypto market and lead to a rate crash for all forms of digital currency.
The second factor involves the general perception of cryptocurrencies in people’s mind. Supposedly, if people start believing that the price of a particular crypto currency will no longer rise, they will begin selling them off. This reduces the cryptocurrency’s value and further stimulates other investors to follow the similar trend. The cycle continues and causes the crypto market to fluctuate very often based on the quick buying and selling trends. Also, there are a few big investors with large portions of stake in the cryptocurrency market, enabling them to hold disproportionate amounts of power over the cryptocurrency pricing.
However, understanding that the problem is not about crypto currencies in itself and considering the other benefits that these crypto assets hold, the digital industry found an alternative way to combat the situation.
This is where the concept of Stablecoins comes into play.

Read: https://medium.com/nitroex-blog/understanding-the-emergence-and-benefits-of-stablecoins-dedc5e76cba6

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