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Why are stablecoins important as financial instruments?

People’s need to stay home has led more traditional and skeptical people to look for new ways to solve their daily problems and needs. In this scenario, in addition to the home office and e-commerce, there are also financial services. Decentralized finance and stablecoins were also a big trend in the digital world in 2020. But what are they and how can they be used? From Bitso, Mexico, they shared some thoughts on the matter with Cointelegraph en Español.

Many people realized that there is no need to go to bank branches to be able to carry out the transactions that they do every day because with the advancement of technology, many actions can be carried out from a smartphone and an internet connection.

So some think that the boom in the new digital economy has taken place, in which cryptocurrencies play a very important role After 11 years of creating the first Bitcoin, they have seen impressive growth in recent yearsand that’s because people are increasingly discovering the benefits and uses of the so-called money of the future.

Why are stablecoins important as financial instruments?
Why are stablecoins important as financial instruments?

From a technical perspective Cryptocurrencies like Bitcoin or Ether are excellent means of exchange as they are 100% digital, secure and traceable assets. However, fluctuations in value have resulted in many people not daring to test their potential.

Because of that Stable coins emerged, which are cryptocurrencies intended to replicate the value of fiat currencies such as the dollar or the euro. These enable users to transfer values ​​internationally, inexpensively and quickly, while at the same time ensuring price stability.

It could also be said that these currencies provide access to savings in the currency the user wants. Not everyone has access to dollar and stablecoin accounts. Using apps can token dollars and protect the value of money in that currency.

“”The most popular type of stablecoin right now are those backed by fiat money with a 1: 1 conversion. We also call them stable coins that are backed by fiatExplained Abraham Cobos, Cryptocatalyst at Bitso.

“A central issuer holds an amount of fiat money in reserve and issues a proportional amount of tokens in the blockchain. In other words, for every token of these stablecoins, there is one dollar in the account that is managed by the central issuer. ”

In theory, this type of stablecoin has a huge advantage as liquidity is not an issue in the marketbecause the issuer can own a million dollars and can distribute a million tokens worth one dollar each. Users can freely exchange them, just like tokens or cryptocurrencies, and they always have the option to exchange them for their equivalent amount in US dollars.

“The main advantage of these stable coins is their potential to provide a medium of exchange that complements the advantages that cryptocurrencies already offer. By counteracting volatility, stablecoins already play a very important role in integrating cryptocurrencies into traditional financial markets, ”Bitso said.

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