What is an algorithmic stablecoin?

What is an algorithmic stablecoin?

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The concept of stablecoin algorithmic is taking more and more space within blockchain environments. He intervenes in the world of cryptocurrencies in order to manage asset movements linked to price volatility. Here are all the important points about these crypto algorithmic stables.

What is an algorithmic stablecoin?

A stablecoin algorithmic represents a cryptocurrency that helps stabilize the market price through supports. It makes it possible to balance a supply in circulation, while taking into account the demand on the market. This is a handy tool for regulating price volatility in the cryptocurrency world. In a simpler way, the stablecoin algorithmic runs through an algorithm that increases the issuance of coins when the price is up, and makes a purchase in the market when the price goes down. Stabilization between supply and demand is therefore in balance, reducing the risk of stockouts. To maintain this, a smart contract is responsible for collecting data concerning the amount of capital of users as well as the various factors that drive the price up or down.

The stablecoins are advantageous for traders using cryptocurrencies such as BTC and ETH. They enable them to avoid major risks of price volatility, thus offering greater comfort.

The characteristics of stablecoins algorithmic

The stablecoins algorithmic are also called stablecoins crypto-collateralized or tokenized. It is possible to exchange them for cryptocurrencies on the blockchain which is responsible for their issuance. The underlying asset can also be redeemed at any time, according to the agreements between the parties. Moreover, even if their operation is similar to fiat currencies, such as the dollar or the euro, they are not subject to any authority, apart from that of their basic blockchain.

Moreover, the stablecoins do not have a single point of failure. Transactions are recorded through many blockchains. As a result, it is difficult to have access to the logs, but their level of security remains undeniable.

The risks of stablecoins algorithmic

The stablecoins However, algorithms present certain risks:

  • Supply increase: Newly issued tokens can only be obtained after bondholders have paid.
  • Supply reduction: Buyers must trust bondholders, who will return the tokens at a specific time.
  • Implementations of oracle contracts remain problematic, in terms of trust, accuracy and honesty.

These risks often lead to the collapse of the stablecoin if not managed properly, as was the case with UST and Luna.

Conclusion

The stablecoins algorithms have recently emerged. Few blockchains are currently launching in this segment, due to the risks of collapse. But it still remains a great opportunity for the future of cryptocurrencies. You just have to wait for the positive results of the blockchains, like tronwho are embarking on this concept.

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Emile Stantina avatar

Emile Stantina

Passionate about blockchain technology and cryptocurrencies, we contribute to popularize and democratize this new world. “Chancellor on brink of second bailout for banks”


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