Stablecoins
About
- Stablecoins are a class of cryptocurrencies, with their values linked to assets.
Cryptocurrency:
- Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments.
- Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
- Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins.
- Unlike better known cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), whose values can wildly rise and fall due to investor sentiments and other factors, stablecoins are designed to maintain relatively steady prices.
- This is achieved through the process of “pegging” the stablecoin to an asset such as fiat currency (like U.S. Dollars, EU Euros, etc.), a commodity (like gold), other cryptocurrencies (such as Bitcoin), by regulating their value via computer algorithms, or by mixing multiple strategies.
- It means that while the price of Bitcoin might rise or fall in the coming years, a USD-pegged stablecoin should ideally remain around $1.
- Stablecoins are different from CBDCs, or Central Bank Digital Currencies, which are digital currencies officially issued and controlled by a government’s central bank.
- Meanwhile, stablecoins can be privately issued and can also be pegged to foreign currencies.
Regulations:
- India has not passed a law specifically for stablecoins. Instead, stablecoins fall under general virtual asset guidelines and anti‑money‑laundering (AML) rules, without clear definitions.