How Stable Coins Make Money

How stable coins make money


In the crypto space, there has been a substantial proliferation of a group of digital assets called stable coins. Apart from the increase in use and the promises in their offing, there have been recent venture capital investments into them. As such, one may wonder how a stable coin makes money for an investor to take home smiling. Well, the very essence of betting your money on crypto is to make more money. Since stable coins are somewhat tied to fiat currencies and digital assets at the same it, one can easily get confused as to how one can get returns on investment.

Take Basecoin, for example. The stable coin has been able to attract total funding to the tune of 100m usd from different calibers of investors. One may be worried about these VCs, many of whom come from top firms. At the foundation of it all, stable coin investors make money by receiving dividends from the newly issued coins given to them for holding the shares of these digital assets. As of now, investors' hopes are that they will be able to purchase a money machine that will provide them will newly-created coins they can use to trade.

How It Works

For stable coins to function as it should, there are three critical components that should be in place - shares, coins, and bonds. With Basecoin as an example still, we will understand that shares are created in the genesis block, and all-new base coins go to them as dividends. The base coins are a set-apart asset issued to holders of the base shares when their prices surpass peg. Theoretically, when their value is diluted, they can be brought back within their value threshold. As for the bonds, they are issued when the value falls below what's expected. When this occurs, an investor can purchase a base bond for the current value.

In essence, at any point when a stable coin falls in price, what is referred to as the "smart bank" will offer a discount. The gesture is meant to encourage people to sell their stable coins to the smart bank. The bank pledges to pay them back those staked stable coins in the future, and fulfilling can take from months to years. In any case, different crypto projects are going on to solve the issue of stability with the stablecoin. A good example is Xank, an initiative that enables users to take positive aspects from stable coins and free-floating digital assets.

Xank achieves its service by maintaining the crypto as a free-floating currency. But while it does it, the platform gives its customers the avenue to process payments with stable value. This is done with the "Stable Pay" feature, which adjusts itself to match the number of coins needed for any transaction. In the case where a user is in need of more coins, the project with cover the amount for the Xank Reserve. Should there be excess coins after the transaction, the so-called Reserve will handle the leftovers. This way, the value is maintained all-round, and adjustments can be made for changes in the market.

The Long Game

Stable coins investors, in the first place, hope that many of the crypto exchanges will make use of their assets. This is because not many exchanges provide a medium through which people can deposit FIAT money. This is the reason many people use their stable coins to "park" their money for a short term period on exchanges when they are trading between cryptocurrencies. Due to the fact that these coins do their best to offer 'stable crypto,' people trading on exchanges will want to do the parking with an asset they are confident about. They want to be sure their money will not lose so much value during the period they chose to do so.

Some sets of investors believe that stable coins will be used by many people, hence bringing their demand to an increased level. They hope so because stable coins provide such a cool service in most exchanges. You may wonder what will happen when the demand does increase. For starters, the bondholders will be issued the newly created coins, after which the shareholders will be given the same. This way, both parties will be able to sell them again and make some cash. The shareholders are the investors. By investing early on, they hope to have bought into the money-printing machine, ultimately giving them back their money when the demand ascends.

That's not the end of it, though. Stablecoin investors also pray that the initial buys of the shares will help sustain the price long enough for them to cash out their investment successfully. They also hope that the demand for their assets will increase for a longer stretch of time, given that it implies they can sell the printed money for a long time and give them incredible returns on investment. From the onset, these are the core incentives that encourage people to buy stable coins or to invest in them. Essentially, they're attempting to buy a money-printing system to go home with more bucks.

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