Cryptocurrencies are massively adopted in different industries. The cryptocurrency price value is rising at its breakneck speed since it offered peer-to-peer transactions, security, transparency, and tradeability. As it has fine advantages, its price fluctuations hinder the efficiency. To override this problem, a stablecoin comes into existence. It is one of the stable digital assets that is pegged with original physical resources to prevent losses from large volatility in cryptocurrency transfer. Creating an own stablecoin requires an intrinsic knowledge of cryptocurrencies and their underlying technology.
Let’s dive into the blog to grab insights about stablecoins and how to quickly create stablecoins to leverage the outstanding benefits of cryptocurrencies.
What is Stablecoin?
A stablecoin is a type of cryptocurrency linked to outside assets such as gold, real estate, diamond, cryptos to stabilize the price volatility.
Mostly, stablecoins are created at a 1:1 ratio with specific fiat currencies, which can be traded on exchanges. Also, it can be collateralized to the value of other assets like gold, silver, oil, or even cryptocurrencies.
Stablecoins have all the benefits associated with typical cryptocurrencies such as immutability, enhanced security, low transaction fees, high data privacy, fast transactions, traceability. But, stablecoins do not deal with the problems that come from the extreme price volatility of cryptocurrency.
Types of stablecoin:
Stablecoins can be categorized into different types based on underlying mechanisms.
Let’s see them in detail.
Collateralized stablecoins are crypto coins whose value is pegged for specific Collateral. Based on different collaterals, they have further classification.
Fiat Backed stablecoins
These types of stablecoins are tied with the value of fiat currency such as the US dollar, euro, or other currencies. Usually, they are linked with US dollars and hold their value fixed at a 1:1 ratio.
The most popular stablecoin USDT was the first fiat-backed stablecoin associated with US dollars.
Asset-backed stablecoins are associated with physical assets except cryptocurrency and fiat currency. The physical assets may be gold, silver, real estate, diamond, oil, and many more. Hence it is called commodity-backed stablecoins.
Example, PAXG is Paxos gold is a crypto asset backed by real gold reserves held by Paxos, a company based in Newyork.
Crypto-backed stablecoins are linked with cryptocurrencies. The value of stablecoins
does not prone to extreme price volatility of backed crypto tokens.
For instance, the DAI token is a crypto-based stablecoin pegged with US dollars. The smart contract maker maintains its price based on the fluctuations of ETH price.
Non-Collateralized or Algorithmic stablecoins
Non-collateralized stablecoins come to implement the basic principle of decentralization. It is based on a seigniorage shared system. In contrast to collateralized stablecoins, these are not focused on assets and uses algorithms to derive value. Rebase protocol is working behind these stablecoins in which the price volatility can change into supply volatility. It means that when the price increases the number of tokens increases rather than the price value changes.
Examples of algorithmic stablecoins are Ampleforth (AMPL), Defidollor(USDC), Frax(FRAX).
Hybrid stablecoins are the integration of collateralized and non-collateralized stablecoins. Both the properties are applied to one coin. It is pegged with resources and developed algorithmically.
RSV (Reserve) is an example of a hybrid stablecoin that uses a flexible pool of tokenized assets including USDC and DAI.
Step by Step Guide on Stablecoin Creation
Choose the Type of stablecoin
As we can see there are different types of stablecoins present in the market. Analyze all stablecoins to know the pros and cons of each type. An algorithmic stablecoin is suited for long-term stability and a collateralized stablecoin is for short-term stability. If you have an interest in cryptocurrency investment while holding a reliable underlying physical asset, you can go for collateralized stabilized coins. When choosing the type of stablecoins, you should consider the factors such as liquidity, cost limit, decentralization, security audit goals, risk possibilities to build your desired stablecoin.
Fix the Underlying Blockchain Platforms
Once you have confirmed the type of stablecoins, the next thing will be choosing the blockchain platform. Ethereum ERC-20 and ERC 223 are the popular platforms to develop robust stablecoins. Other new platforms that came to develop the stablecoins include Tron and EOS. Mostly, while implementing EOS-based stablecoins, the users may leverage the benefits like high interoperability and enhanced scalability. Evaluate different blockchain platforms and choose a reliable one based on your requirements.
Analyze the Strategies to Increase Liquidity
Liquidity is a vital factor needed to consider while developing a stablecoin. Follow the steps to establish high liquidity.
- Integrate the automatic monitoring system or API to gather the current value of the token and its inflation. Also, offer daily currency rates and index rates.
- Try toestablish low transaction fees.
To design the user interface of stablecoin creation, you have to understand the workflow of stablecoins transactions and how it works entirely. Build websites or mobile apps to interact with stablecoins. Make sure that it has a simple, easy-to-understand, intuitive, and appealing user interface for facilitating an optimized experience.
Once you have gathered all the requirements, start the development phase for your stablecoin creation. Develop reliable smart contracts to interact and carry out flawless transactions. Finally, implement all the advanced features, integrate them into the blockchain platform and launch your stablecoin.
Example for stablecoin creation:
To understand stablecoin development better, consider an example of creating a stablecoin.
Type of stablecoin: Commodity backed stablecoin
Asset: Real Estate property
Blockchain Platform: ERC 20
When the real estate owner tries to build a commodity-backed stablecoin endorsed by the real property. The stablecoin can be created at a 1:1 ratio with 1 Sqft of property. Each stablecoin should provide all the benefits of real property that is verifiable, profitable, transferable.
To create the real estate-backed stablecoin, you should have underlying assets that need to be submitted to the custodian. All the archives related to real estate property such as time-stamped records of property, digital signatures of the owner, selling history details need to be stored in a distributed blockchain ledger to create a proof of ownership of physical property.
Once the records are stored in the verifiable blockchain ledger, smart contracts trigger stablecoin creation. Then, the minted tokens are added to the organization and distributed to the users.
Build your stablecoin with an appealing front end and secure blockchain platform. To make your stablecoin comply with regulatory compliance, you should adopt a smart KYC, AML onboarding process.
Stablecoins have a limelight future in the crypto world since it has prodigious benefits. Limiting asset volatility, peer-to-peer transactions enhanced security, are making the stablecoins worthy and reliable. If you are interested in developing stablecoins, you need to partner with a reliable cryptocurrency development company. Our team of experts has excellent knowledge and well experienced in stablecoin development. They will provide reliable support throughout the entire process and helps to deploy futuristic stablecoins in the crypto space.
Let’s connect with our team to access cutting-edge solutions for developing desired stablecoins and reap heaps of benefits in your crypto business!