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Stablecoins Explained: The Sword of Damocles or the Haven for Investors?

A stablecoin, as its name suggests, is a cryptocurrency that is built to retain a stable value. Stablecoin can be pegged to a cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals).

The need for a stablecoin is obvious. These asset-backed cryptocurrencies are stabilized by assets that fluctuate outside of the cryptocurrency space, that is, the underlying asset is not correlated, reducing financial risk.

However, these stablecoins don’t always strictly match their peg (1:1). As demand increases, new stablecoins are created to reduce the price back to the normal level. If the coin is trading too low, then coins on the market are bought up to reduce the circulating supply. In theory, prices of these stablecoins would remain stable as they are driven by market supply and demand. But in practice, the value may vary with fluctuating degrees of deviation.

Some of the most popular stablecoins are backed by US Dollars, whose values are pegged to USD at the rate of 1:1. These USD-backed coins include Tether (USDT), USD Coin (USDC), TrueUSD (TUSD), Paxos Standard Token (PAX), Gemini Dollar (GUSD), and Dai (DAI).

Although Tether is the oldest and by far the most used stablecoin, it’s also the most controversial. Tether is accused of being unable to provide audits for their reserves while continually printing millions.

According to an analysis on Coinmonks, USDC, TUSD and PAX all outperform Tether (USDT) in terms of “stability”. The analyst delves into the issue using 4 metrics: 1. Deviation from $1.00 peg 2. Downside deviation from $1.00 peg 3. Volatility of daily price changes 4. Market correlation in a downturn. TUSD and PAX are the only two coins that emerge victorious in all 4 categories.

TUSD is made possible by tokenizing US Dollars through TrustToken’s legal and technical platform, and remains one of the most stable among all stablecoins. POKKET, the leading crypto fixed deposit service, is currently using TUSD as collateral. Visit our official website or follow our Twitter account to earn some stable and handsome extras!

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