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Cryptocurrencies, although the best assets of the financial world, have since inception in 2009 seen their fair share of volatility-related issues. Bitcoin has historically been the most volatile of all crypto assets.
Between October 2017 and January 2018, for example, bitcoin's volatility index hit 8%.
To curb the effects of volatility on investors, crypto developers introduced stablecoins. These coins earn praise for their stability and ability to maintain their value over a long time. All credits to the value backings, and the options to redeem in case any risks arise.
Value Backing generally refers to the collateralization of the value of the assets. In other words, it involves making fiat, asset, or crypto value redeemable coins.
Fiat Backed Stablecoins
These are forms of stablecoins that have a backing currency regulated by the central regulating authorities. The value of fiat-backed stable coins is attached to one or more currencies.
They use a fixed ratio for collateralization of these tokens. TrueUSD, for example, has a collateralization ratio of 1:1 with the US dollar.
However, fiat-backed stablecoins come with their drawbacks. They lack transparency, thus are impossible to audit openly. These stablecoins cannot attain their full potential since they are only as important and valuable as their fiat hubs.
Cryptocurrency Backed Stablecoins
These kinds of stablecoins have a backing of other cryptocurrencies. The difference between fiat and crypto-backed stablecoins is mainly that the hub of the latter is blockchain. Due to the transparency and openness of the blockchains, these stablecoins enable quick auditing.
The drawback to this backing is the volatility of cryptocurrencies. For them to minimize the effects of the instability to stable coins, the stablecoins employ the over-collateralization protocol. The protocol mainly works to ensure the prices of the stablecoins remain stable.
A significant example of a crypto-backed stablecoin is dai, ethereum's blockchain-based coin. The ethereum to dai ratio is 1.5:1. Notice that the value of ether that backs one dai is 50% more than dai value. That means that even if the price of ethereum falls by 25%, dai will still have a stable value.
Commodity Backed Stablecoins
These kinds of stablecoins get their backing from other tangible assets, including precious metals such as gold and silver. The stablecoins are not prone to inflation as much as the fiat-backed stablecoins.
Commodity backed stablecoin owners get the opportunity of redeeming the stablecoins to possess real assets. One example of a Commodity backed stablecoin is the new Gold secured currency(GSX).
GSX is a product of the Apollo fintech, a well-known technology company. The stablecoin hub is the Apollo blockchain, the most prolific and impermeable blockchain in the crypto space.
It uses the best features of crypto and stablecoins, thus providing a backed stablecoin with increasing value. GSX is the first stablecoin that offers continuous value increase.
The GSX will boast various functionalities like database level sharding, adaptive forging, and many others of the Apollo blockchain. However, the key to making this stablecoin is the Gold backing feature, which will make this coin the best investment prospect.
Apollo fintech controls over 3,000 + acres of platinum and gold-rich land in Zimbabwe within the Kazangarare gemstone deposits. The revenue collected will have to first pay for all the mining expenses. Afterward, 50% of the profits from the gold mining project by Apollo fintech will back the value of GSX.
Moreover, Apollo fintech is continually acquiring new pieces of land. The newly purchased properties will help in expanding mining operations perpetually, thus boosting the value of GSX.
Apollo fintech has diverse sets of products that generate income. 25 % of the profits collected from the use of other products will aid in acquiring more land and gold. Proceeds from these new mining sites will, too, raise the coin value.
The fintech will acquire mining equipment and buildings. The value of these assets will encompass the value of the coin, thus increasing the value.
Gold is not affected by inflation. Even the most robust of fiat currencies are highly prone to inflation. The deflationary characteristic of the asset assures investors of value maintenance.
Cryptocurrencies are widely affected by volatility. Although in some cases, the volatility is highly beneficial, the same may have adverse effects, especially where prices plummet. Gold, however, is a stable asset. The stability makes it the best asset for backing stablecoins.
Moreover, since the stability of the gold prices is uncompromised, users can redeem their holding anytime without making losses.
Gold has high demand, and the demand for the asset is perpetually increasing. The need is owing to the volatility and deflationary features of gold. More demand leads to an increase in value over time. The above means, therefore, that the stablecoin value will perpetually increase.
The different forms of stablecoin backings assure the assets a stable value. However, gold backing the GSX stablecoin offers more than just stable values. Gold's high demand ensures that gold remains highly liquid, thus attractive to investors.
Since gold has high demand, thus soaring in value and liquidity, being used as a stablecoin backing makes them have a perpetual increase of value. That makes the stablecoin a hybrid coin since it possesses features of both cryptocurrencies and traditional stablecoins.