Stablecoin: A bridge connecting TradFi and the encryption world.

Why does the crypto market need stablecoins?

In the highly volatile crypto market, investors face a core issue: how to mitigate risks without completely exiting the market? This is precisely the main reason for the existence of stablecoins. The original intention behind the design of these digital assets is to maintain a stable price correlation with real-world assets, thereby providing market participants with a relatively safe haven.

Unlike traditional cryptocurrencies which can fluctuate by more than 10%, stablecoins ensure their price remains at a preset level—usually pegged to the US dollar at a 1:1 ratio—through various mechanisms. This stability gives them unique practical value in everyday payments, cross-border transfers, and market hedging.

Two Main Paths to Implement Stablecoins

model based on real asset collateral

The most common stablecoins operate on a full reserve basis. The issuing institution must hold an equivalent amount of cash in USD, gold, or other assets as collateral. When users want to mint new stablecoins, the issuer collects the corresponding fiat currency or assets and then creates the corresponding number of tokens.

USD Coin (USDC), Paxos (PAX), and TrueUSD (TUSD) all adopt this model, with each token corresponding to US dollars in a bank account at a 1:1 ratio. This transparent collateral mechanism provides users with clear asset protection.

Another type of collateral-backed stablecoin is supported by other encryption assets. The most famous example is DAI, a token created within the Maker DAO ecosystem that maintains its price stability through over-collateralization of encryption assets (such as ETH), using smart contracts and incentive mechanisms to dynamically balance supply and demand.

algorithm-driven stablecoin

Unlike the above model, some uncollateralized stablecoins rely on pure algorithmic mechanisms. These systems automatically adjust the token supply based on market demand—supply increases when demand rises and decreases when demand falls, in order to maintain the target price. Although this method is theoretically more efficient, it faces greater stability challenges in practice.

Stablecoins in Real-World Application Scenarios

Compared to traditional fiat currencies, stablecoins combine the advantages of both worlds: they retain the speed and convenience of encryption while achieving the price stability of fiat currency.

In cross-border payments, using стейблкоins can bypass the cumbersome processes of traditional banking systems, achieving settlement in seconds. The fees for international remittances drop from dozens of dollars to just a few cents, while completely eliminating the risk of exchange rate fluctuations.

For traders and investors, during market corrections, they can quickly convert their positions into stablecoins to lock in profits without completely exiting the market. This liquidity management capability is crucial for professional trading.

In addition, stablecoins provide a foundation for emerging financial activities such as DeFi lending and liquidity mining. Both borrowers and lenders need a predictable medium of exchange.

The Future Position of Stablecoins

With the increasing recognition of digital assets globally and the involvement of traditional financial institutions, stablecoins are gradually evolving into a key infrastructure that connects the traditional financial system with the blockchain world. They retain the innovative characteristics of encryption (24/7 trading, low costs, transparency) while providing the stability expected from traditional finance.

Note: According to the requirements of the European financial regulatory framework MiCA, users in the European Economic Area will face specific restrictions when using unapproved стейблкоins. For more details, please refer to the relevant regulatory guidelines.