{"id":13740,"date":"2021-09-10T10:54:00","date_gmt":"2021-09-10T05:24:00","guid":{"rendered":"https:\/\/zebpay.com\/?p=13740"},"modified":"2025-02-13T07:28:32","modified_gmt":"2025-02-13T07:28:32","slug":"how-do-stablecoins-work","status":"publish","type":"post","link":"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work","title":{"rendered":"How do Stablecoins Work?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work\/#How_are_stablecoins_minted\" title=\"How are stablecoins minted?\">How are stablecoins minted?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work\/#USDC\" title=\"USDC\">USDC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work\/#USDT\" title=\"USDT\">USDT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work\/#DAI\" title=\"DAI\">DAI<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/zebpay.com\/in\/blog\/how-do-stablecoins-work\/#In_Conclusion\" title=\"In Conclusion\">In Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n\n<p><strong>Why does the USDT price always remain ~$1? How do they mint it? What can I use it for? What is even the point of it or other such currencies?<\/strong><\/p>\n\n\n\n<p>We\u2019ll try to answer all the above questions in this post.<\/p>\n\n\n\n<p>When you throw a small rock into a pond, you see the effect it has on it right? But imagine throwing the same rock into the ocean. It will hardly have any impact. <\/p>\n\n\n\n<p>That\u2019s how it is with small cap coins. The smaller the market cap, the higher the volatility. The smaller caps coins are more affected by everyday buy and sell orders compared to higher cap coins or even fiat currency like the US Dollar.<\/p>\n\n\n\n<p>It is hard to use <a href=\"https:\/\/zebpay.com\/in\/blog\/bitcoin-price-prediction\">Bitcoin<\/a>\/<a href=\"https:\/\/zebpay.com\/in\/blog\/ethereum-price-prediction\">Ethereum <\/a>in some cases considering the fluctuations. We all experienced a flash dump at the start of the week didn\u2019t we?<\/p>\n\n\n\n<p>At the very basis of cryptocurrencies is the decentralization of money and a free-for-all payment system minus the volatility. That\u2019s where stablecoins come in. They are an attempt at a currency that isn\u2019t volatile. Their value is pegged to a real-world, fiat currency.<\/p>\n\n\n\n<p>The main usage of stablecoins is actually at crypto exchanges. You can exchange volatile currencies for stablecoins if you want to lower the risk. Stablecoins are also easier to move between exchanges. <\/p>\n\n\n\n<p>Let\u2019s take a look at a few stable coins.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-how-are-stablecoins-minted\"><span class=\"ez-toc-section\" id=\"How_are_stablecoins_minted\"><\/span>How are stablecoins minted?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Before we get into this, let\u2019s understand how they are minted. No matter how many coins are bought or sold, the prices of these stable coins stay the same. Stablecoins like USDT and USDC are backed by having the same amount of fiat currency held in reserves. These are centralised projects essentially. <\/p>\n\n\n\n<p>Other stable currencies like DAI are stabilised by the supply and demand forces on their native platform which in turn dictates how many DAI tokens are minted or <a href=\"https:\/\/economictimes.indiatimes.com\/markets\/cryptocurrency\/explained-what-is-coin-burning-in-the-cryptocurrency-universe\/articleshow\/85658968.cms?from=mdr#:~:text=What%20is%20coin%20burning%3F,price%20of%20the%20coin%20concerned.\" target=\"_blank\" rel=\"noopener\">burned<\/a>. This continuous balancing which keeps the price of DAI pegged to 1 is a process that is completely decentralized and transparent. It\u2019s on the ethereum blockchain, so you can track it of course. Because now a lot of nations are trying to roll out their own stable coins, many people believe that they will be the currencies of the future.<\/p>\n\n\n\n<p>Let\u2019s look at a few of them.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-usdc\"><span class=\"ez-toc-section\" id=\"USDC\"><\/span>USDC<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This is a stablecoin created by <a href=\"https:\/\/www.circle.com\/en\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">Circle<\/a> and Coinbase in 2018. It is the 10th largest currency overall and one of the most used stable coins. It has a contract deployed on Ethereum, BSC, Solana, Polygon, and many other chains. You can read more about the currency <a href=\"https:\/\/f.hubspotusercontent30.net\/hubfs\/9304636\/PDF\/centre-whitepaper.pdf\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">here<\/a>. <\/p>\n\n\n\n<p>This coin is continually audited which is a plus and also coinbase being one of the creators, it\u2019s easily redeemable.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-usdt\"><span class=\"ez-toc-section\" id=\"USDT\"><\/span>USDT<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>USDT is a coin many people refer to as ICO Money. It\u2019s funny but when you think about it, almost every currency in the world can be exchanged against it. It\u2019s a great coin to be paired with. Tether is the 5th largest currency in the world and the most used stable coin. Similar to USDC, it has a contract deployed on the biggest chains. Read more about it <a href=\"https:\/\/tether.to\/wp-content\/uploads\/2016\/06\/TetherWhitePaper.pdf\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">here<\/a>. <\/p>\n\n\n\n<p>The stated purpose of USDT is to combine the unrestricted nature of cryptocurrencies \u2014 which can be sent between users without a trusted third-party intermediary \u2014 with the stable value of the US dollar.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-dai\"><span class=\"ez-toc-section\" id=\"DAI\"><\/span>DAI<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><a href=\"https:\/\/zebpay.com\/in\/buy-dai\/\" target=\"_blank\" rel=\"noreferrer noopener\">DAI<\/a> is pretty much the only stable coin that can boast about being decentralized. It\u2019s not issued by any centralised authority, the project itself does not have control over its value. Which makes it interesting, considering it\u2019s always pegged to the dollar. Unlike other stable coins, DAI does not have reserves that it can mint against, it uses smart contracts. DAI is created when a collateralized debt position is created, which locks ethereum into a smart contract. <\/p>\n\n\n\n<p>Read more about it <a href=\"https:\/\/makerdao.com\/en\/whitepaper\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">here<\/a>. It\u2019s ranked at #30 on CoinMarketCap with an ever increasing demand.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-in-conclusion\"><span class=\"ez-toc-section\" id=\"In_Conclusion\"><\/span>In Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>We are going to leave you with the thought that while stablecoins have their own merit, most of them are centralised which is pretty much the antithesis of blockchain technology. Nevertheless, with the use case that they provide and the companies backing the major ones, it\u2019s hard to ignore them.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-css-opacity is-style-dots\"\/>\n","protected":false},"excerpt":{"rendered":"<p>Why does the USDT price always remain ~$1? How do they mint it? What can I use it for? What is even the point of it or other such currencies?<\/p>\n","protected":false},"author":1,"featured_media":13741,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_ayudawp_aiss_exclude":false,"footnotes":""},"categories":[14],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/posts\/13740"}],"collection":[{"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/comments?post=13740"}],"version-history":[{"count":1,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/posts\/13740\/revisions"}],"predecessor-version":[{"id":31602,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/posts\/13740\/revisions\/31602"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/media\/13741"}],"wp:attachment":[{"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/media?parent=13740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/categories?post=13740"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zebpay.com\/in\/wp-json\/wp\/v2\/tags?post=13740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}