Learning the friendly way

If you're new to the cryptocurrency market or just new to stablecoins, in this piece we're covering everything you need to know about this digital currency market. As we dive into the topic, we're going to cover why they are useful to the financial market and take a look at some popular options currently being traded. 

While stablecoins are not designed to provide returns, they provide a great means of hedging against losses when the market drops and allow users to tap into the benefits of crypto that fiat currencies can not otherwise provide.

While some might expect the regulation for stablecoins to be different from that of cryptocurrencies, the truth is that they currently both fall under the same (digital asset) umbrella. There are currently motions in place to regulate stablecoin issuers.

What are stablecoins?

A stablecoin is a type of cryptocurrency designed to hold a stable value by pegging its price to a stable asset, like a fiat currency or commodity. This version of digital money is designed to offer a "stable" market in an industry that is known to be rather volatile.

Stablecoins allow businesses to tap into the benefits of crypto without falling victim to price volatility or being exposed to counterparty risk and while they don't provide returns typically associated with the crypto industry due to their stable price, stablecoins do provide investors with a strategy to hedge against volatile markets.

With the fast-developing world of cryptocurrencies, there are now a number of stablecoin options available on the market, each with varying structures, leadership, reputation, and use cases. There are two main types of stablecoin based on what keeps stablecoins stable, these include fiat collateralized and crypto collateralized, as well as algorithmic stablecoins and commodity-backed stablecoins.

Fiat collateralized stablecoins (fiat currencies)

Fiat collateralized stablecoins are pegged to a government-issued fiat currency, such as the United States dollar. These currencies are backed on a 1:1 basis, meaning that the central authority holds one unit of the reserve currency for each stablecoin issued in a secure account.

Some examples of stablecoins in this category include Tether (USDT), Paxos Standard Token (PAX), and USD Coin (USDC). All of these coins are pegged to the U.S. dollar and the stablecoin issuers are required to hold an equivalent amount in a reserve account.

Crypto collateralized stablecoins (crypto)

A slightly less common version of stablecoins is the crypto-collateralized stablecoin meaning these digital assets remain the same value as the underlying tokenized asset that they are pegged to and do not rely on third parties to hold the correct amount of stablecoin reserves.

DAI is a prime example of this, a crypto-backed stablecoin created when users send ETH to an Ethereum-based smart contract. 

Algorithmic stablecoins (smart contracts)

Algorithmic stablecoins are pegged to other digital assets' values via smart contracts and work hand in hand with another cryptocurrency. If the algorithmic stablecoin trades above its peg, new coins (of the other cryptocurrency) enter circulation, reducing its value. If it trades below its peg, coins are destroyed, thereby increasing the price.

Investing in non-collateralized stablecoins, e.g. an algorithmic stablecoin, is considered to be high risk as any failures in the algorithmic stablecoin system can result in dramatic value losses, as was witnessed with the Terra LUNA crash in 2022.

Other cryptocurrencies

There are also commodity-backed stablecoins that are backed by commodities and precious metals, such as gold-backed stablecoins. Popular stablecoins among the commodity-backed stablecoins pegged to precious metals include Paxos Gold (PAXG) and Tether Gold (AUXt).

Some stablecoins backed by nothing at all are still pegged to fiat values. These are called central bank digital currencies and are issued by banks to provide a digital version of their local fiat currency. 

How do stablecoins work?

Stablecoins are typically built on blockchain networks that facilitate the functioning of the coin. For example, the most popular token standard for stablecoins is Ethereum's ERC-20 token. These tokens function as any other cryptocurrency in terms of peer-to-peer transactions, only they use the Ethereum blockchain to facilitate the transactions and maintain the network.

The stablecoin issuer will then be responsible for ensuring that the correct amount of fiat currency or cash equivalents are held in reserve, based on what currency it is pegged to (i.e. the U.S. dollar or Euro). In the case of commodity-backed stablecoins, the equivalent amount of the commodity will need to be held in physical vaults.

What are stablecoins used for?

While the world slowly integrates other cryptocurrencies into its financial landscape, stablecoins provide a simple and easy means to integrate the crypto world with traditional financial products.

As a rule of thumb, stablecoins provide the benefits of digital currency without the volatility, empowering the crypto ecosystem to better integrate into everyday life.

What are the risks of stablecoins?

Stablecoins, while aiming for stability, still carry innate risks. As their value is dependent on the stability of the assets they are pegged to, they are not totally immune from sudden fluctuations. Regulatory scrutiny poses another risk, with potential changes affecting their operation or legality. Additionally, stablecoins are susceptible to issuer risk, as their value relies on the credibility and financial stability of the organization backing them, as well as their integrity when it comes to holding the correct amount of collateral. Inadequate reserves or insufficient transparency regarding asset backing could also lead to liquidity concerns and market instability.

What is the purpose of stablecoins?

While you might be asking yourself why anyone would want to purchase a digital asset that is unlikely to bring about any profits, stablecoins present a number of benefits in the crypto ecosystem. 

Hedge against volatility

For starters, they provide protection against market volatility. As they are pegged to an underlying asset and relatively stable (when compared to more volatile cryptocurrencies) they can provide a hedge against bear markets.

Should a cryptocurrency suddenly be exposed to price fluctuations, moving your funds to a stablecoin can help protect against any losses in value or purchasing power. The funds can easily be moved back once the market has corrected. Instead of liquidating your assets, you can simply move them to another blockchain-powered asset until the market settles. 

Price stability (similar to fiat currency)

Stablecoins also provide a safe means of trade for merchants using crypto in terms of price stability. When sticking with a predominately stable cryptocurrency they omit the chance of their $2 transaction when paying for a coffee being worth $1 at a moment's notice. This mitigates the risk for payment-driven businesses and provides innovation within the finance sector.

Remittance market

Another area that stablecoins provide a valuable service is for cross-border money transfers. Stablecoins bridge the gap of getting funds from one location to another and incur a fraction of the time and costs of fiat transactions. 

Popular stablecoins in the crypto market

Stablecoins went from being relatively controversial to featuring in the top 5 biggest cryptocurrencies by market capitalization. Below are a few of the top stablecoins on the market.

Tether (USDT)

Arguably the most popular stablecoin, Tether is currently listed in the top 5 biggest cryptocurrencies. While the stablecoin has seen its fair share of controversy (in terms of accurate reserves) compared to other stablecoins, the coin remains a firm favourite amongst organizations, investment managers, and crypto investors alike. 

The coin was first released in 2014 under the name Realcoin and was designed to provide a second layer on top of the Bitcoin network. Later, the coin was created using the ERC-20 token standard and became operable on the following blockchains: Ethereum, EOS, Tron, Algorand, and OMG. 

Dai (DAI)

Dai started out as an earlier version known as Single-Collateral DAI (SAI) which was pegged to a single cryptocurrency. In 2019, the multi-collateral DAI was created and soft-pegged to the U.S. dollar, maintaining this value by collateralizing other cryptocurrencies using stablecoin technology, most notably an Ethereum-based smart contract.

The stablecoin is managed by the Maker Protocol and the MakerDAO (decentralized autonomous organization). Such stablecoins also allow holders to earn interest based on their stake. 

USD Coin (USDC)

Another one of the top fiat-backed stablecoins but with a slightly less controversial back story, the USD Coin is currently ranked within the top 10 biggest cryptocurrencies. The company behind the asset, the Centre Consortium, holds $1 in reserves for every 1 USDC that enters circulation.

The reserves are held in cash and short-term U.S. Treasury bonds. The company's goal is to "create an ecosystem where USDC is accepted by as many wallets, exchanges, service providers and dapps as possible" to facilitate cashless and international transactions.  ‍

Tap into the world of stablecoins in the app

The stablecoin market is notorious for its ability to maintain price stability and protect against market price falls and price fluctuations, providing inherently stable assets in a world of other cryptocurrencies.

Whether you're looking to build a portfolio of fiat or crypto-backed stablecoins or stick to regular cryptocurrencies, the Tap app provides a seamless and highly secure platform for managing these currencies. Alongside the exchange, there is also a unique wallet in which you can store both crypto and fiat currencies, as well as a prepaid crypto card that allows you to spend these currencies anywhere in the world through a single tap of your finger. 

We are delighted to announce the listing and support of Chiliz (CHZ) on Tap!

CHZ is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold CHZ for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting CHZ will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Chiliz is a fintech company that uses blockchain technology to create new ways for fans to support and engage directly with their favorite sports teams. The company's goal is to be the leading provider of fintech solutions for sports and entertainment businesses around the world. Chiliz enables its users to trade tokens to show their support for professional sports teams.

Chiliz fans can buy their favorite team's Fan Tokens using the native Chiliz token " CHZ " on socios.com, the crowd management platform that Chiliz uses. Sports fans staking $CHZ on Socios.com also have opportunity to receive new Fan tokens as well as a up to 10% $CHZ bonus yield.

We are delighted to announce the listing and support of Curve Dao (CRV) on Tap!

CRV is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold CRV for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting CRV will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Curve Dao is a one of the most used decentralized finance (DeFi) platform that utilises an automated market maker to manage liquidity. Curve is an exchange liquidity pool on Ethereum that allows users to trade stablecoins efficiently, with limited risk and the opportunity to earn supplemental income, this is an attractive option for liquidity providers.

In addition to the income generated from providing liquidity, the Compound protocol or iearn.finance also generates additional income for liquidity providers behind the scenes.

CRV is the active token to the Curve platform. CRV holders are rewarded with governance rights, fee payments, and long term rewards based on their liquidity commitment and length of ownership.

Get to learn more about Curve (CRV) in our dedicated article here.

We are delighted to announce the listing and support of Enjin (ENJ) on Tap!

ENJ is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold ENJ for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting ENJ will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Playing an important role in the adoption of Web3, Enjin provides a platform of software products designed to allow anyone to harness the power of NFTs (non-fungible tokens) through the development, trade, monetization, and marketing of blockchain assets.

Powering the ecosystem is the Enjin Coin (ENJ), a token used to back the value of NFTs and other assets minted on the platform. When an asset is minted it locks ENJ tokens into a smart contract and effectively removes the tokens from circulation.

Enjin Coin (ENJ) is the native token of the Enjin ecosystem. Built on the Ethereum blockchain and compatible with multiple gaming platforms, the Enjin Coin is an ERC-20 token that allows the in-game items created on the platform to be traded with real-world value. The ENJ token has a maximum supply of 1 billion coins.

Get to know more about Enjin (ENJ) in our dedicated article here.

Dear Tappers,

We are delighted to inform you of significant enhancements coming to your account, as we have successfully partnered with a UK FCA regulated provider to revolutionise your financial experience.

We have some fantastic news to share! Our quest to find the perfect banking partner is complete, and we are thrilled to announce that we've joined forces with a UK FCA regulated provider to elevate your financial experience with added benefits.

Please find below a summary of the upcoming changes:

1. Seamless Transition: We have diligently worked to ensure a smooth and unnoticeable transition, allowing you to continue using our services without interruption.
2. Enhanced Features: Our new partner brings a wealth of innovative features, designed to make your user experience on our platform more intuitive and enjoyable.
3. Robust Security: Your financial information remains a top priority, and with our new partner's industry-leading security measures, you can have peace of mind knowing your data is well-protected.
   

Please note that as a result of this upgrade, your account will receive new IBAN, Sort Code, and Account Number details for Euro and GBP payments, respectively.

🚨 Important: Please refrain from sending funds to your old accounts, as they will be returned to you. Ensure that you update your payment details in the bank accounts you use to transfer funds to your Tap account.

We understand that change can be as intimidating as karaoke night, but we are confident that this transition will be both positive and seamless for you.

Our friendly support team is here for you, ready to provide assistance.

Thank you for being a valued member of our community. We're excited to embark on this new chapter together!
‍
Sincerely,

The Tap Team

We are delighted to announce the listing and support of Synthetix (SNX) on Tap!

SNX is now available for trading on the Tap mobile app. You can now Buy, Sell, Trade or hold SNX for any of the other asset supported on the platform without any pair boundaries. Tap is pair agnostic, meaning you can trade any asset for any other asset without having to worries if a "trading pair" is available.

We believe supporting SNX will provide value to our users. We are looking forward to continue supporting new crypto projects with the aim of providing access to financial power and freedom for all.

Synthetix is a groundbreaking decentralized asset protection protocol that permits users to mint, hold, and trade derivatives across different asset classes such as commodities, fiat currencies, stocks, and even cryptocurrencies like Bitcoin.

Synthetix provides a decentralized, permissionless, and censorship-resistant platform that allows users to gain exposure to both crypto and non-crypto assets without the need for ownership of these assets. This enables anyone with an interest in DeFi to join the industry through the use of synthetix assets regardless of whether they hold the actual assets or not.

Get to know more about Syntheticx (SNX) in our dedicated article here.