Stablecoins have gained significant attention in the digital realm, and rightfully so. With the rising acceptance of cryptocurrencies, stablecoins have gained popularity as a reliable alternative. And here the question arises Do stablecoins are the popular payment method on deep web?
However, stablecoins are a kind of cryptocurrency designed to maintain a stable value and provide a level of stability that other currencies cannot match. It means that traders can prevent the risk of market volatility and have consistent pricing.
Stablecoins become popular on the deep web due to their amazing features, such as faster transactions and lower fees than other traditional payments, making them the most preferred option. In this article, we will dive deeper into what exactly stablecoins are and why they become a popular payment method on Darkweb.
About Stablecoins
Stablecoins are a kind of cryptocurrency usually designed to maintain a stable price eventually, pegged to the value of an underlying asset such as the US dollar. They intend to offer all the advantages of crypto while attempting to prevent rampant volatility.
However, the cryptocurrency market can increase and drop by billions of dollars in a day like Bitcoins is subject to major fluctuation in value. But the Fiat currencies like the US dollar or British pound don’t encounter these types of price fluctuations. That’s the reason stablecoins are becoming popular for online payment transactions.
The aim is that stablecoins can enjoy the advantages of being a cryptocurrency without the related extreme fluctuations. This could greatly contribute to setting up cryptocurrencies as a practical means of making purchases.
Although, businesses generally aren’t interested in accepting a payment method that could dramatically lose its value overnight. If traditional cryptocurrency is similar to investing in a high-risk stock, stablecoins are like withdrawing cash from an ATM.
However, various stablecoins are used for different purposes to achieve price stability; some are decentralized, and others are centralized. So let’s discuss the types of stablecoins in the next section.
Different Types of Stablecoins
There are various kinds of stablecoins, such as traditional and algorithmic stablecoins, with their own way of fixing the token’s value. Here they are:
Fiat-Backed Stablecoins
The most well-known stablecoins in the market are backed by fiat currency. For example, the USD coin (USDC) is fiat-backed and pegged to the US dollar (USD) at 1:1. Although other stablecoins are associated with the Euro, the British Pound, the Chinese MB, and the Japanese Yen.
To acquire fiat-backed stablecoins, investors have to swap their fiat currencies or other cryptocurrencies for them. When they require to sell their coins, they can swap them for the equivalent fiat currency or use them to purchase other cryptocurrencies. Unlike other cryptocurrencies, fiat-backed coins do not need miners and are not decentralized. Regardless, they use centralized servers and & depend on third parties to control their transactions.
Cryptocurrency-Backed Stablecoins
These crypto-backed stablecoins are cryptocurrencies pegged to the value of another, more established cryptocurrency. For example, MakerDAO is one of the well-known crypto-backed stablecoins. It uses a smart contract, a kind of self-executing, code-based contract next to the Ethereum blockchain to pool enough Ether (ETH) to use as collateral for its Stablecoin. Then, when the sum of collateral reaches a certain level in the smart contract, users can mint DAI- the MakerDAO stablecoin.
Commodity-backed stablecoins
These stablecoins get stability assurance by tying themselves to real-world assets such as silver, platinum, and gold. They are designed to provide greater access to investors who wish to invest in cryptocurrency but want something more authentic. Thus, they may invest in community-backed Stablecoin, which is tied to the underlying asset’s value.
However, commodity-based stablecoins are less at risk of inflation than fiat currencies. In addition to holding on to the same value as the collateral, these currencies can be liquidated when required. These are preferred choices for investors because they are less volatile than fiat.
Tether Gold (XAUT) is an example of a commodity-backed stablecoin. As it is backed by a reverse of gold kept inside a vault in Switzerland. One ounce of gold is equivalent to one XAUT.
Algorithmic stablecoins
Algorithm stablecoins typically depend on complex algorithms to keep their prices stable. These stablecoins are not backed by any “real-world” commodities; this class of stablecoins uses algorithms to differentiate the supply based on market demand.
In a nutshell, these algorithms automatically burn (permanently remove coins from circulation) or mint new coins based on the variable demand for Stablecoin. These stablecoins depend on two tokens, one Stablecoin and another cryptocurrency that backs the stablecoins, and so the algorithm (or the smart contract) regulates the relationship between the two.
A computer algorithm controls algorithm stablecoins, follow particular rules and instructions, and acts as a real central back, defending the peg of their currency in the market. When the price of the Stablecoin goes over the peg, they purchase assets and sell them when the price falls below the peg. These algorithms are optimized to incentivize market members’ behavior and to control the circulating supply so that any given coin’s price stabilizes around the peg.
How did Stablecoins work?
Stablecoins generally work the same, as they are cryptocurrencies struck on a blockchain that users can trade on an exchange just like any other crypto coin. Users can store stablecoins in their hot and cold wallets as they do for Bitcoin.
However, stablecoins work by ensuring a stable value compared to the price volatility seen in cryptocurrencies such as Bitcoin and Ethereum. These digital assets get stability in different ways, such as they can be backed by tangible assets like fiat currency or commodities, with reserves held to match the value of the stablecoins in circulation.
The other way involves using smart contracts & algorithms to control the supply of stablecoins. When demand increases, more coins are generated, and when it goes down, coins are burned to decrease supply; all this is done just to stabilize the prices.
How Stablecoins Become Popular
Stablecoins are digital currencies backed by a stable asset, like the fiat currency of commodities, to decrease the volatility linked with other cryptocurrencies, such as Bitcoin. The use of stablecoins in online payment transactions has steadily increased thanks to their many advantages.
One of the best benefits of using stablecoins is that they offer low transaction charges, making them a budget-friendly alternative to traditional payment methods. Also, stablecoins become secure and faster transactions, with no intermediaries needed to complete the transaction.
Moreover, stablecoins are also broadly used in peer-to-peer transactions and cross-border remittances, where they offer a quick and cost-effective alternative to traditional methods. By eliminating intermediaries, stablecoins let individuals send money directly to each other, decreasing the cost and time of transactions.
People also use stablecoins to bypass the regulatory restrictions on cross-border remittances, making it a preferred choice for people living in countries with strict capital controls. The other way which makes it popular as a payment method is its effect on the traditional financial system. As more users turn to stablecoins for their anonymous transactions, there is a chance that traditional financial institutions could be disrupted.
However, by eliminating intermediaries, stablecoins could undermine the role of banks and payment transactions, leading to a major transformation in the way we conduct financial transactions.
Most Common Stablecoins
Stablecoins are becoming a growing currency because of the finest features of cryptocurrency and fiat money. Here we have curated a list of the most common stablecoins to purchase in 2023.
- Tether (USDT)
It is one of the original Stablecoin debuted in 2014. If we talk about market capitalization, it becomes the most dominant Stablecoin of 2023. Tether has long been one of the top 5 cryptocurrencies by market cap and is backed by gold, cash equivalents, and traditional currency. The price of Tether is 1:1 correlated to the USD. Although all units are supposedly backed by US dollars by the organization that created Tether, even police remain doubtful about these assertions.
Tether is also well-liked for its security and convenient integration with crypto-to-fiat platforms. It is one of the largest Stablecoins but is also often considered the most risky because of its past.
- USD Coin (USDC)
Another stablecoin USDC tied to the value of the US dollar on a 1:1 basis has secured a position among the top five cryptocurrencies based on market capitalization.USD coin is backed by the coinbase, the world’s largest bitcoin broker and biggest exchange holder of bitcoin.
- Binance USD (BUSD)
Crypto exchange Binance also introduced a Binance USD pegged 1:1 to the US dollar. BUSD is an option for Ethereum and is mostly used in the decentralized finance scene on BSC and to trade between BSC cryptos.
- True USD (TUSD)
This Stablecoin is 100% backed by the US dollar and is one of the most liquid stablecoins on the market. The coin provides lower transaction charges than wire transfers of fiat currency and higher interest rates on stored balances. However, the True USD collateral is split among bank accounts held by the Trust companies.
- Dai (DAI)
The most popular Stablecoin backed by cryptocurrency is Dai, but the price of Dai is backed by tokens based on Ethereum, which is fixed to the USD price.
- Magic Internet Money (MIM)
A stablecoin MIM has a 1:1 soft to the US dollar and was introduced in 2021 by the cryptocurrency loan platform Abracadabra. Besides irregular minor price hikes or falls, MIM successfully holds the $1 price.
- Gemini Dollar (GUSD)
It is regulated ERC-20 tokens backed by the US dollar. It is completely collateralized, which means it is backed by an equal amount of US dollars held by Gemini. However, an independent accounting organization BPM audits the Gemini dollar every month to make sure that there’s a similarity between the amount of GUSD in circulation and the amount of USD available in reserve.
- BitUSD
It is a decentralized stablecoin backed by the US dollar. It is designed to provide users with an alternative, more stable digital currency than Bitcoin and other cryptocurrencies. This Stablecoin basically runs on the BitShares Blockchain and is also referred to as a Bitasset or smartcoin.
- Neutrino USD (USDN)
It is a broadly used algorithm stablecoin of 2023 and lends among the top market cap. The token of USDN was fixed at a 1:1 to the USD. The coin is actively traded despite the devalue in the last autumn.
- TerraUSD
TerraUSD is one of the most valuable cryptocurrencies by market cap introduced by Terra. It is a decentralized Stablecoin, using complex algorithms to keep it stable. It is intended to monitor the value of 1 USD; it’s 1 to 1 pegged to the USD.
Why People Prefer Stablecoins?
Blockchain lets stablecoins holders take benefit of various opportunities. First Stablecoin was introduced as a fiat currency replacement on exchanges, giving investors a secure place away from the other cryptocurrency volatility. This means that the prices won’t drop coin prices are driven by belief. So if investors consider their stablecoins are worth and backed by one dollar each.
Stablecoins come in handy for many reasons, as they act as a temporary refuge for investors looking to protect their funds during the spike market. Additionally, users don’t need various international bank accounts to send crypto to their friends in other regions; the users only need one crypto wallet.
Moreover, the peer-to-peer feature of stablecoins lets quick digital transfer without needing third-party intermediaries to ease transactions. This helps users to save money that otherwise has to pay transaction fees & other costs for third-party involvement.
Stablecoins also make life easier and can be used to pay salaries in cryptocurrency, making it cost-effective to move money across borders. Only a transaction fee for moving funds on the blockchain has to be paid. However, Stablecoin, on the other hand, intends to gain the potential benefits of cryptocurrencies, like security transparency, immutability, and decentralized control, without losing stability.
How Stablecoin Becomes the Popular Payment Method on Darknet
Stablecoin gained popularity as the most preferred method on the deep web for various reasons:
- Anonymity- not completely anonymous, but stablecoins can offer a high level of security compared to other traditional banking systems. Users can make wallets without disclosing personal details.
- Price Stability- unlike other cryptocurrencies, stablecoins are intended to maintain a stable value by being pegged to a fiat currency like the US dollar. This stability makes it more popular for conducting illegal transactions since the value won’t fluctuate dramatically during the transaction process.
- Faster Transactions- stablecoin transactions are generally quicker and more efficient than other banking systems. They don’t need intermediaries like banks, which can slow the process of transactions, particularly for international payments.
- International Accessibility- stablecoins are not subject to the same restrictions as traditional financial systems. This global accessibility makes it popular to users worldwide, including the states with restricted access to traditional banking services.
- Easy to Use- Stablecoins are quite simple, as their value is stable and tied to a popular fiat currency. This makes it attractive to users who are less familiar with cryptocurrencies.
How to Choose the Right Stablecoin
A huge variety of stablecoins is available within the ecosystem of 16,000+ cryptocurrencies, so picking which ones to buy, trade, or use for transactions remains difficult even for experts.
You have to keep certain things in mind between centralization and decentralization, stability, regulation, and permissionless-ness. Fiat-backed stablecoins, For example, are prominent because they are as stable as the US dollar (USD) or other generally accepted currencies.
Although linking crypto to a federal currency makes fiat-backed cryptos a target for governmental regulation and an overall more centralized trade-off compared to algorithmic stablecoins, the most decentralized option,
For instance, many people believe that USDC is one of the most stable stablecoins due to its transparent accounting and the fact that its parent company is a reputable financial service provider.
Although, opponents of USDC say that it is highly centralized and not free from regulatory control by Government or other authorities. Certainly, USDC is among the stablecoins that have the capability to disable certain wallets, which implies that government authorities could potentially freeze your tokens.
Fiat-collateralized Stablecoin isn’t transparent either, as the ongoing ambiguity over Tether’s accounts has proven. In the Past, Tether has lost its peg due to speculation that it might not have adequate in the bank to repay all of its holders, though, to date, it has always returned to its 1:1 peg.
Another stablecoin in our list is that Binance USD doesn’t strictly hold an equivalent amount of US dollars in its account, despite using assets such as bonds and cash equivalent.
For this reason, many investors favor the transparency of crypto-collateralized tokens like Ardana’s dUSD and GTON Capital’s GDC tokens. The benefit of these tokens is that their smart contracts are fully transparent and can be reviewed by users to make sure they are sufficiently over-collateralized by other cryptocurrencies. In this way, they are considered the most reassuring of stablecoins.
Risks Associated with Stablecoins
We know the significant benefits of stablecoins, but there is also lots of risk associated with it. The Tether scandal gives an example of how Stablecoin can go wrong. Here is some potential risk:
- Centralization Risk: accounts can be misused, blocked, or accessed by third-party. Centralization risks mean the same financial issues fiat currencies face when a central authority has the power to print money without error. This may lead to hyperinflation.
- Counterparty Risk: by believing a third party to print currency and maintain cryptocurrency stability, the dollars might not be fractionally reserved instead of completely backed. In this scenario, a bank run could cause the price of the coin to drop radically.
- Algorithm Manipulations– decentralized stablecoins live in smart contracts in protocols such as Ethereum. There is a risk that the algorithm which keeps the coin stable fails. It is also possible a third party can also manipulate that algorithm.
FAQs
To purchase stablecoins, you must have an account with a crypto exchange or a digital wallet where you can purchase crypto directly. However, these services may not be available in some regions. So make sure to check whether the options are available in your location.
Moreover, Exchanges such as Coinbase may give some stablecoins, but such centralized platforms may list fiat-backed exclusively. For more alternatives, you can use a decentralized exchange to swap any existing tokens for most stablecoins.
Generally, stablecoins are considered safe to use, as they are intended to maintain a stable value and moderate price volatility. It’s essential to note that stablecoins are not entirely risk-free, as there is always the possibility of the underlying asset losing value or the stablecoin issuer facing a financial issuer. We advise you to research and select reputable stablecoin issuers.
Stablecoins are significant because they offer a way for cryptocurrency users to ease volatility and secure their investments from price fluctuations. Moreover, stablecoins can be used as a medium of exchange for transactions, as they risk value loss that is intrinsic in other cryptocurrencies.
Stablecoins play a significant role in improving the reach of DeFi and expanding interoperability between DeFi & traditional markets. Stablecoins let businesses and consumers browse and participate in DeFi while keeping their funds dollar-denominated and not investing in a specific cryptocurrency.
Final words
If you want to shift towards stablecoins as your online payment transactions, start by understanding various types of stablecoins. Select the Stablecoin that meets your particular needs, and always make sure that you are dealing with a trustworthy provider.
Stablecoins have massive strength in the world of online payment transactions. They offer stability, security and give exciting possibilities. And help investors keep their funds on the blockchain while reducing risk.
Stablecoins are the best way to invest and are becoming the most preferred payment method. Because they are much cheaper than traditional methods, banks and payment processors usually charge high fees for international transfers.