Stablecoins are crypto assets that are designed to have the same value as a certain asset–for example, the US dollar, or another commodity such as gold–to ensure the stability of its price. On many popular stablecoins, the price is stable because its issuers guarantee users can convert it to its native currency or assets with the same value.
Crypto assets such as Bitcoin and Ethereum are notorious for their high volatility when compared to fiat currencies, or currencies that are officially issued by governments. This is unavoidable, because blockchain technology is still relatively new, and the crypto asset market is still relatively small.
As digital assets that can be traded internationally, cryptocurrency excels from a technological point of view. However, high fluctuations in the value of crypto assets making them not well suited for payment for daily transactions. Generally, people expect to know how much money or assets they have today and in the days to come, to give them a sense of security and certainty in their daily lives. This is unpredictable with the highly volatile value of crypto assets.
Stablecoins allow their owners to transfer assets in a way that is more affordable and quicker around the world like other crypto assets, but at a more stable value. Stablecoins essentially combines the advantages of crypto assets and fiat currencies or native assets—fast transaction processing and security/privacy that crypto assets have and the stable value of fiat currencies or native assets.
Stablecoins Backed by Fiat Money
As one of the most stable currencies, the US dollar is the most popular currency to be used as collateral for stablecoins. However, some stablecoins already use other currencies as collateral such as the RupiahToken which has the same value as the rupiah. Below are some examples of stablecoins backed by fiat currencies:
Stablecoins Backed by Precious Metals
Some crypto assets are also created with a 1:1 guaranteed value with commodities such as gold to ensure price stability. Here are some examples:
Stablecoins Backed by Crypto Assets
One example of a stablecoin backed by other crypto assets is Dai. Dai is a crypto asset built on the Ethereum blockchain programmed to have the same value as the US dollar. With its stable value, Dai is often used for trading crypto assets and as an investment instrument. Actually, how do you keep Dai’s price stable even though it is guaranteed by other crypto assets that have high price volatility?
Dai on the market today is generated by a decentralized finance application called MakerDAO. To get Dai which is 1:1 in US dollars, users must pledge a certain amount of crypto assets stored in Maker’s vault. The value of the collateral stored in the vault must be higher than the Dai you wish to borrow by a ratio of approximately 150%. That is, if a person wants to borrow a Dai worth 100 US dollars, then he must deposit a crypto asset worth 150 US dollars. If the value of the collateralized crypto asset falls, the Maker protocol can liquidate the collateralized asset to cover the Maker vault payable position. This makes the value of Dai relatively stable 1:1 with the US dollar.
The ratio of the amount of collateral and loans obtained varies depending on the choice of crypto assets that you want to deposit in the Maker vault. The choice of assets that can be guaranteed to get Dai includes ETH, USDC, PAX, YFI, and many more. However, if you don’t want to worry about the process of getting Dai in this way, you can certainly buy it in various crypto trading applications or DEX applications such as Uniswap/Sushiswap.
If you want to buy stablecoins safely and reliably, download Pintu app and trade anytime and anywhere in the palm of your hands. With Pintu, you can start to invest in crypto from as little as IDR 11,000 and invest equal sums of assets at regular intervals with Dollar Cost Averaging (DCA) feature. Simply download Pintu and click the “DCA” feature that you can find on the app’s home page.
Antonopoulos, A. M. (2021). Mastering Ethereum. Stanford University Press.
The most adopted indonesian rupiah stablecoin. RupiahToken. (n.d.). https://rupiahtoken.com/.