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Stablecoins, Explained. Stablecoins have become an essential… | by Blockchain.com | @blockchain | Oct, 2022

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2 years ago

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Stablecoins have become an essential part of decentralized finance (DeFi) used for trading, purchases, and more.

In this article we’ll cover:

  • What a stablecoin is
  • Why people may buy stablecoins
  • How stablecoins are used
  • How stablecoins work

Stablecoins are cryptocurrencies pegged to currencies like the US dollar or euro or assets like the price of gold.

Because they’re “tied” to the value of less volatile assets, stablecoins provide an alternative way for people to participate in crypto without having exposure to bitcoin and other tokens known for their potential wide price swings.

The main draw of stablecoins is that they provide the speed of crypto with the stability of dollars and other trusted assets.

Reasons why people may buy stablecoins

  • Cash alternative. Stablecoins could minimize fluctuations in holdings since they stay pegged to a fiat currency or physical commodity, such as the US dollar or gold.
  • Building and protecting wealth. People whose currencies have devalued through inflation may buy stablecoins as an alternative to their local currency.
  • Payments. In areas where it’s difficult to get physical dollars, stablecoins could be a viable way to do commerce.
  • Trading. Crypto exchanges often offer stablecoin pairs against dollars, bitcoin, ether, and other assets.

Some of the most common use cases of stablecoins may include:

  • Hedging against market volatility. The ability to pull funds out of volatile cryptocurrencies, especially during extreme market fluctuations, could be an attractive use case of stablecoins.
  • Cheaper payments. Because stablecoins circumvent traditional banks and clearing houses, users may avoid many of the traditional fees associated with cross-border transfers.
  • Faster payments. Bank payments usually take between 3–5 days while stablecoin payments could settle in a matter of minutes or hours.
  • Primarily centralized. Advocates of a fully decentralized financial system often criticize stablecoins because they’re controlled by centralized entities, meaning that they’re not truly trustless.
  • Counterparty risk. When you buy a stablecoin, you’re trusting that the issuer will honor its promises and redeem your coins for the appropriate amount of fiat currency. If the entity controlling the stablecoin mismanages its reserves or becomes insolvent, you could lose money.
  • Smart contract risk. If there’s a bug in the code governing the stablecoin, it could lead to loss.
  • Lack of transparency. Some stablecoin companies skirt or ignore audit requests, meaning that users never really know if the necessary reserves to hold the peg are actually in place. Without audits, those funds can be embezzled or used for purposes other than collateralization.

No. Some stablecoins are completely collateralized by cash, holding at least a 1:1 ratio in reserves to maintain their peg.

However, each stablecoin project manages peg maintenance and collateralization uniquely, so reviewing the documentation from the company can help you understand their process.

There are four kinds of stablecoins and each works a little differently.

Fiat-backed stablecoins

  • Stablecoin value is pegged to a fiat currency, like the US Dollar.
  • Fiat reserves ensure a 1:1 collateralization ratio.

Commodity-backed stablecoins

  • Stablecoin value is pegged to a single commodity or index of commodities.
  • Collateral reserves are tied to the commodity.

Crypto-backed stablecoins

  • Stablecoin value is pegged to another cryptocurrency, like BTC.
  • Many crypto-backed stablecoins hold more collateral than needed, and in different currencies, to ensure peg.

Algorithmic stablecoins

  • No collateral is required to start or operate a true algorithmic stablecoin.
  • Relies on smart contract algorithms based on supply and demand.

It’s important to note that a stablecoins peg is not the same as its collateral currency.

The peg is the value the stablecoin is tying itself to, such as the US dollar. If a stablecoin is pegged to USD, that means that one unit of the stablecoin will equal one US dollar.

The collateral currency is what’s backing up the stablecoin; it’s the stored value that helps the stablecoin maintain its peg.

For example, a stablecoin could be pegged to the Euro, but be backed by various assets, such as fiat currency or gold, that essentially proves the value of the stablecoin.

Asset-backed stablecoins have real assets held in reserve as collateral for the stablecoin.

Many asset-backed stablecoins currently available are fiat-backed, using a fiat currency such as the US dollar. Other asset-backed stablecoins use commodities like gold or even other cryptocurrencies as their collateral.

Fiat-backed stablecoins are pegged to a traditional fiat currency, such as the US dollar or the Euro, and maintain their peg by using a one-to-one (1:1) collateralization ratio, meaning that for one stablecoin, there is one unit of the fiat currency held in reserve.

One of the primary criticisms of fiat-backed stablecoins is that the collateral must be held by a custodian, which means trusting a centralized organization.

A good example of a fiat-backed stablecoin is PAX USD:

BCDC Digital Dollar video (https://youtu.be/CH_U0hdg4ao)

Fiat-backed stablecoins

Commodity-backed stablecoins use a physical asset, like gold, oil or real estate, as a peg for a digital currency. Asset-backed stablecoins that use commodities as collateral can be more volatile than stablecoins collateralized by fiat currencies.

Gold-backed tokens, for example, are fairly stable and offer the advantage of being able to hold the value of an asset like gold without needing to store and secure the physical gold coins or bars. Stablecoins backed by gold often use a measurement of the metal, such as one gram, as the peg for the stablecoin.

Some companies even take a blended collateral approach, using a mix of assets to back their stablecoins, similar to a precious metals index or using multiple fiat currencies.

You’re probably ahead of us at this point: Crypto-backed stablecoins are cryptocurrencies that hold their value at a 1:1 ratio to a different, more established, cryptocurrency.

Some cryptobacked stablecoins are overcollateralized, meaning they hold more reserves than needed, in order to minimize the risk of losing their peg.

This is why some crypto-backed tokens use a mix of multiple cryptocurrencies, or crypto and fiat currency, to collateralize the stablecoin. In the event that the pegged crypto has an extreme drop in value, the stablecoin can maintain value.

MakerDAO’s stablecoin DAI (which runs on multiple blockchains) is one of the most popular stablecoins available and makes use of this model.

MakerDAO made this change after ETH experienced a massive drop in 2020, creating extreme losses in DAI since it was pegged to ETH.

Since then, MakerDAO has implemented overcollateralization and uses multiple cryptocurrencies as reserves.

Many DeFi purists consider algorithmic stablecoins to be the pinnacle of dollar-pegged stablecoins, as they don’t require any centralization or reliance on an underlying reserve.

Algorithmic stablecoins are non-collateralized, which means that these stablecoins do not necessarily require any assets held in reserve in order to function. Instead, they use complex formulas in smart contracts to determine when to create or destroy tokens to maintain parity with the chosen peg, which is often one dollar.

Some of these stablecoins provide rewards when they are valued over their dollar peg, selling what’s called “seigniorage shares” to bring the token back down to the peg value.

Algorithmic stablecoins function as standalone central banks, burning existing tokens when the value falls below the fiat peg, and creating new tokens when the price goes higher than the tracked currency.

Stablecoins have received a lot of attention in the last few years, and the jury is still out on what their place is in the future of finance. In some cases, stablecoins are the only option for people who need their crypto to maintain a stable value while being useful for everyday purchases.

A great example of this took place in Argentina in 2022 when economy minister Martin Guzmán resigned, sending the peso into further decline and driving the demand for stablecoins up. Argentinians bought stablecoins to hedge against devaluation of the peso.

Some fear that central banks may take over the role that decentralized networks play in stablecoins and issue currencies of their own. So-called “central bank digital currencies” (CBDC) would have all the capabilities of cryptocurrency without any of the privacy protections or pseudonymity that most crypto provides.

It’s hard to tell how long that adoption will take, so in the meantime, stablecoins fill a valuable need in the crypto ecosystem.

— — — — — — — — — — — — — — — — –

Disclaimer: This information is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional advisor. Some of the stablecoins mentioned above are not supported by Blockchain.com



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Bitcoin

Insight Into The Timing And Factors

Published

1 week ago

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May 9, 2024

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The Bitcoin price has experienced heightened volatility over the past week. After recovering from a low of $56,500, the largest cryptocurrency in the market surged to $65,500 within four days. However, it has since retraced some of its gains and is currently testing the $61,000 support level. 

Despite this volatility and the absence of strong bullish momentum, venture capital firm Pantera Capital remains optimistic about the future of BTC’s price, citing the recent Halving event as a significant factor.

Pantera Capital Projects $117,000 Price Target By 2025

In a recent investor letter, Pantera Capital revealed its Bitcoin Halving rallies model, which predicts a bottoming out of the BTC price followed by a rise through the Halving rally. 

Based on the average duration of previous rallies, the firm forecasts that BTC’s price will peak at $117,000 in August 2025. The average total duration of this cycle, encompassing pre- and post-Halving rallies, has historically been around 2.6 years, with symmetry observed across cycles.

Pantera Capital highlights the relationship between Halving events and BTC’s price. The firm asserts that if the demand for new Bitcoin remains constant while the supply of new Bitcoin is reduced by half, it will create upward pressure on the price. 

The anticipation of a price increase has also historically driven increased demand for Bitcoin leading up to Halving events. However, Pantera Capital acknowledges that the impact of each subsequent Halving on price may diminish as the reduction in the supply of new Bitcoin from previous Halvings becomes less significant.

Moreover, the firm notes that, on average, the Pantera Bitcoin Fund has nearly doubled in value for eleven years. Based on this historical performance, Pantera Capital envisions a scenario in which the price of Bitcoin reaches $117,000 by 2025.

Bullish Bitcoin Price Predictions

Renowned crypto analyst Titan of Crypto has recently taken to social media platform X (formerly Twitter) to share bullish predictions for the Bitcoin price. With forecasts ranging from $75,000 to $110,000, Titan of Crypto highlights various factors and patterns that could potentially drive BTC’s growth.

According to Titan of Crypto, a price rise to $110,000 for Bitcoin is “programmed.” While the analyst did not elaborate on the specifics of this programming, it suggests a strong conviction in BTC’s potential to reach that level.

Titan of Crypto also identifies a current head-and-shoulders pattern in the Bitcoin price chart. If this pattern holds, the analyst suggests that BTC could rise to the $75,000 mark. If confirmed, this pattern could signify a bullish trend reversal and further support the projection of Bitcoin reaching higher price levels.

The analyst also highlighted $61,500 as a critical point to monitor due to the possibility of “panic selling.” The analyst suggests many market participants might react to this level, potentially increasing selling pressure. 

Lastly, based on his analysis, the analyst suggests a conservative price prediction of $108,000. However, Titan of Crypto believes that BTC’s price may exceed this projection, indicating a more optimistic outlook.

Bitcoin price
The 1-D chart shows BTC’s price retrace. Source: BTCUSD on TradingView.com

Featured image from Shutterstock, chart from TradingView.com



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Crypto Whale Withdraws $75.8 Million in USDC From Coinbase To Invest In Ethereum’s Biggest Presale  – Blockchain News, Opinion, TV and Jobs

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1 week ago

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May 8, 2024

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A crypto whale has withdrawn $75.8 million USDC from Coinbase institutional and invested a significant amount in Ethereum’s biggest presale, ETFSwap (ETFS).

An anonymous crypto whale reportedly withdrew a whopping $75.8 million in USDC from their Coinbase Institutional account on Friday night. This move follows the bull market widely predicted to happen in the coming weeks. An in-depth investigation into the event reveals that a large chunk of the money was used to acquire ETFSwap (ETFS) tokens in Ethereum’s biggest presale, making waves in the crypto community.

Crypto Whale Withdraws $75.8 Million In USDC From Coinbase Institutional 

Whale Alert, an X (formerly Twitter) account notable for reporting large and exciting transactions in the crypto community, shared the news of a colossal $75.8 million USDC withdrawal from Coinbase institutional to an unknown wallet on Friday night. 

The post that went viral in the crypto community has caught the attention of crypto enthusiasts, garnering several reactions. Some enthusiasts insist that the anonymous whale enacted the move to diversify their portfolios and gain big in the upcoming bull market later this year. Others believe that the whale wants to sell off the majority of their holdings and probably settle some of the debts they accrued. 

However, whichever the case may be, a click on the web link to the eye-catching transaction shows that the anonymous transaction was made from a Coinbase Institutional account to a new project, ETFSwap (ETFS), firmly believed to be Ethereum’s biggest presale.

ETFSwap (ETFS) Becomes Ethereum’s Biggest Presale 

Like the anonymous whale that bought a large amount of the ETFSwap (ETFS) presale tokens, thousands of crypto investors are still flooding into the presale, with over 50 million tokens already sold out in what is now believed to be Ethereum’s biggest pressale. This reiterates the fact that the crypto community believes in the viability and genuineness of the ETFSwap (ETFS) platform. 

ETFSwap (ETFS) is an Ethereum-based decentralized finance (DeFi) platform that enables users and investors to buy, trade efficiently, and own a wide variety of cryptocurrencies and tokenized exchange-traded funds (ETFs) in a one-stop shop. 

This innovative platform has come at a time when the tokenization of Real-World Assets (RWAs) is being embraced in the cryptocurrency world. At the forefront of this niche, ETFSwap (ETFS) users and investors enjoy the benefits provided by the innovation and flexibility of the decentralized finance realm while trading their various assets.

With the market-making and perpetual futures services available on the platform, trading is fun, seamless, liquid, and efficient on ETFSwap (ETFS). Consequently, users and investors are assured of continuous trading activities without any expiration dates. 

Users can also take absolute advantage of the leverage tool on the platform. The ETFSwap (ETFS) platform enables users and investors to amplify their gains with the 10x leverage option provided. This tool is great for seasoned investors who want to maximize their gains by up to 1,000%, meaning a $1,000 gain can easily be turned into a $10,000 gain. 

Another feature that has swept crypto enthusiasts off their feet is that on ETFSwap (ETFS), users and investors are not required to undergo rigorous KYC verification. They are afforded the platform to trade anonymously. This will, in return, absolve them of any third-party interference, such as banks or regulated bodies. 

Additionally, CyberScope, a leading blockchain security provider, has audited ETFSwap’s (ETFS) smart contracts, and the results show their resistance to cyberattacks. 

Whale’s Investment In The ETFSwap (ETFS) Presale Sends Crypto Community Into A Buying Frenzy

After the whale invested a large amount of his withdrawal from Coinbase into the ETFSwap (ETFS) presale, the platform has seen major market activity, with investors actively buying the token. 

Presently, in Stage 1 of the presale, the ETFS token is priced at $0.00854 and is selling fast due to this being the lowest price the token will ever be. Therefore, there is no better time to invest in the highly esteemed ETFSwap (ETFS) project than now, especially after analysts have predicted it will go parabolic when the bull run begins.

For more information about the ETFS Presale:

Visit ETFSwap Presale

Join The ETFSwap Community



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StakingFarm’s Revolutionary Approach to Democratizing Crypto Staking – Blockchain News, Opinion, TV and Jobs

Published

1 week ago

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May 7, 2024

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The landscape of cryptocurrency is ever-evolving, marked by constant innovation and adaptation. In September 2022, Ethereum, one of the leading players in the crypto sphere, made a groundbreaking move by transitioning from proof of work (PoW) to proof of stake (PoS) with The Merge. This transition promised not only enhanced scalability and efficiency but also a significant reduction in energy consumption, a pivotal step towards a more sustainable future.

However, amidst the celebrations of Ethereum’s technological leap, a new challenge emerged: the high barrier to entry for individual stakers. Traditional staking methods necessitated substantial initial capital, limiting participation to a select few. Recognizing this hurdle, StakingFarm stepped in with an innovative solution: ETH Liquid Staking.

Democratizing Staking with StakingFarm’s ETH Liquid Staking

StakingFarm’s ETH Liquid Staking introduces a paradigm shift in the world of cryptocurrency staking. By allowing users to stake smaller amounts of ETH, StakingFarm makes blockchain support accessible to a wider audience, fostering inclusivity and decentralization.

Key Features and Benefits

StakingFarm’s approach to liquid staking is underpinned by several key features and benefits:

  • Accessibility: StakingFarm’s ETH Liquid Staking welcomes users with a $50 welcome bonus upon registration, eliminating the daunting entry barriers present in traditional staking setups.
  • Simplified Process: Gone are the days of managing complex staking hardware and software. StakingFarm automates the staking process, converting users’ ETH into liquid staking derivatives (LSDs), streamlining the staking experience.
  • Enhanced Liquidity and Utility: Unlike traditional staking methods where funds are locked up, StakingFarm’s LSDs provide liquidity, enabling users to utilize their assets for trading, yield farming, or other financial activities while earning rewards.
  • Maximized Returns: StakingFarm isn’t just a staking service; it’s a comprehensive financial tool designed to amplify investment potential. By integrating LSDs into various financial strategies, users can potentially increase their overall returns compared to traditional staking methods.

Navigating the Staking Landscape

The transition to PoS represents more than just a technical evolution; it’s a revolutionary approach to addressing the inefficiencies inherent in PoW mechanisms. PoS not only reduces energy consumption but also opens up financial opportunities to a broader group of investors.

At StakingFarm, we recognize the barriers posed by traditional staking setups. Our liquid staking solution democratizes access to cryptocurrency staking, empowering users to participate with significantly lower capital requirements.

Join the StakingFarm Revolution

Investors seeking to diversify their wealth management strategies with cryptocurrency are invited to explore StakingFarm’s innovative solutions. With personalized services and a commitment to client education, StakingFarm is poised to guide investors through the complexities of crypto investments.

Whether you’re a novice or an experienced investor, StakingFarm offers tailored investment packages to suit your needs. From the ETH Trial Plan for beginners to the flagship Ethereum Plan, there’s a staking opportunity for everyone.

Redefining the Future of Staking

In conclusion, StakingFarm’s liquid staking solution represents a significant advancement in the cryptocurrency staking landscape. By lowering barriers to entry and simplifying the staking process, StakingFarm is paving the way for a more inclusive and accessible future in crypto staking.

As the crypto world continues to evolve, StakingFarm remains committed to providing the best possible staking experience. Join us today and unlock the full potential of your cryptocurrency investments with ease and security.

For more information：Please click web：www.stakingfarm.com



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