Your Guide to Stablecoins

June 1, 2021
Newton Team
June 1, 2021
Newton Team
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Curious about Stablecoins? We break down what they are, why they're useful and how to buy them on Newton.

Stablecoins are a category of decentralized currency that have a controlled value. Their price is pegged to physical assets or determined using algorithmic logic; so stablecoins aren't subject to the same volatility and speculation associated with the rest of the crypto market.

Stablecoins can be a part of your trading strategy, as an on/off ramp to exchanges, or to hold value outside of traditional banks. They are also used for quick and cheap cross border payments and for business transactions.

There are three types of stablecoins, based on the type of collateral that backs them.

Fiat collateralized

Fiat collateralized stablecoins are backed by a real world assets like USD or commodities like gold at a 1:1 ratio. This makes them very price stable, however no collateral is held on the blockchain so they are inherently more centralized.

Tether (USDT) is a popular stablecoin backed by a combination of USD and cash equivalents, it is live on several blockchains including Ethereum.

Buy Tether on Newton →

USD Coin (USDC) is an ERC-20 token on the Ethereum blockchain that is backed to the US dollar at a ratio of 1:1.

Buy USDC on Newton →

QCAD is a stablecoin that is pegged to the Canadian dollar and backed 1:1. QCAD is also an ERC-20 token that runs on the Ethereum blockchain.

Buy QCAD on Newton →

Crypto Collateralized

Crypto collateralized stablecoins are backed with reserves of cryptocurrency like ETH. Because of the volatility of cryptocurrency, the ratio of collateral held must be much higher to account for fluctuations in the market. The crypto collateral is held on the blockchain so the system is entirely decentralized and transparent, however they can be less price stable than fiat backed coins.

Non-collateralized

Non-collateralized stablecoins may sound complicated, but they are based on the same principles that central banks use to control the price of fiat currency. The price of these stablecoins are determined by code in smart contracts that algorithmically mandate stability. Non-collateralized stablecoins are completely decentralized, but there is no chance for liquidation if the coin fails.

To buy stablecoins on Newton, you'll need to create or sign in to your account, fund your account with fiat currency and then trade for the coin of your choice. Happy trading!

Check out stablecoins and much more on Newton.

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The views and opinions expressed here are those of individual authors and do not necessarily reflect that of Newton. The content of our articles are for informational purposes only and do not constitute financial advice.

Newton Team

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