As a public cryptocurrency blockchain, Algorand is being used by a number of platforms that want to enjoy the benefits of scalability, decentralization, low transaction costs, as well as security. In the Algorand ecosystem, the ALGO is the native coin.
To ensure that every user has access to every functionality in the protocol, this ecosystem utilizes a permissionless proof-of-stake protocol. Holders of the coin can vote on the blocks based on the stakes they possess.
Algorand: Its Features
One reason different platforms use Algorand as their underlying blockchain infrastructure is because it handles the major issues that plague a lot of blockchains in existence. These issues are called the blockchain trilemma.
A lot of blockchains have to battle with either solving decentralization and security issues, then ignoring scalability or vice versa.
To ensure that users of this blockchain do not have to suffer from the blockchain trilemma, Algorand uses Pure PoS. This consensus algorithm makes it easier for coins that are hosted on Algorand to be secure, scalable and decentralized.
Before we can go further and analyze the stable coin that is utilizing the Algorand blockchain infrastructure and its resultant Pure PoS consensus algorithm, let us analyze the coin of the ecosystem- the ALGO.
The Algorand Foundation is the one charged with the tokens distribution. Users of the ALGO can benefit from the immense functionalities in this ecosystem.
Stable Coins: What Are They?
There’s a great chance that you must have heard the term, ‘stable coin’. These are cryptos that are backed by another crypto, traded commodity, or fiat currencies. The traded communities that might back a stable coin are industrial metals or precious metals.
Those stable coins that are backed are called stable coins, while those that are not being seen as seigniorage-style.
Advantages of Stable Coins
Bitcoin is one cryptocurrency that everyone in the world of digital assets knows. This fact doesn’t stop it from being volatile. One issue that the foremost and most popular crypto suffers from is volatility in its worth. The price swing from one period to another is wild, and this can even be seen in its intraday price swings.
The fact that BTC and many alternative coins are volatile have made them less attractive to be used in daily transaction by the public.
For an asset to be seen as a currency, it should be a medium to store value, effect exchange, and possess a relatively stable value. If a currency swings wildly in value, it may scare off the public because they are not sure of the purchasing power of the said currency.
Since many cryptocurrencies do not tick the basic features of the traditional currency, stable coins were created. They bridge the differences between both worlds. Users of these stable coins can effortlessly enjoy the benefits of a decentralized ecosystem, while basking in the perks of the traditional currency scheme.
Why Price Stability Is Possible
It is no news that fiat currencies are usually stable in value. The major reason for this is that there are reserves backing them. Apart from that, controlling organizations such as their central banks have laid out actions to carry out when these fiat currencies become volatile. Many fiat currencies have been pegged to different types of underlying assets. Some use their foreign reserves as some sort of collateral to fight off wild volatility in value.
Most cryptocurrencies lack the features that tackle volatility in fiat currencies. They are not pegged to an underlying asset, neither do they have a centralized body that controls the value.
Fiat-collateralized stable coins
These are stable coins that are backed by fiat currency reserves such as the USDC. This stable coin on the Algorand blockchain is backed by the US dollar. USDC has a reserve of fiat currency which acts as a collateral to the coins that are issued.
Fiat-collateralized stable coins, sometimes, use precious metals and commodities to back their value. Some may use silver, gold, or even oil as some sort of collateral.
Whatever reserves may be used, they have to be maintained by independent custodians. These reserves have to be audited from time to time to ensure that they meet the needed regulations. Other examples of coins that fall under this category are Tether (USDT), as well as the TrueUSD.
USDC’s Digital Dollars
Circle and Algorand recently reached an agreement that allows a stable coin that is linked to the USD Coin (USDC) to be brought into the blockchain. USDC is a popular stable coin that is being backed by hundreds of fintech firms. Currently, this stable coin has a huge volume of transactions under its belt, raking in about $50B USDC.
An increase in the demand for this currency has been noticed, which in turn has led to a drastic rise in the volume of USDC in circulation. The partnership between Circle and Algorand will improve security, scalability, and usher in more financial applications.
Circle APIs and Circle Business Accounts’ clients can transfer their funds effortlessly. The transfer can be done from the traditional banking system to the Algorand blockchain. This agreement will bring about the benefits of using Circle APIs, while mixing them with the perks of using the Algorand blockchain. Users of Circle APIs can now enjoy the security, scalability and speed that are made possible with the Algorand’s blockchain.
To ensure that USDC has a myriad of users to developers, Centre has allowed this fiat-collateralized stable coin to be accessible in different blockchains. Algorabd blockchain is the second blockchain infrastructure that this stable coin has graced. In the future, USDC will be on a myriad of blockchain ecosystems to ensure that acceptability by more users will be possible.
USDC is currently in charge of the digital dollar stablecoin innovation on Algorand, while they are being fiat-collateralized by Circle. These assets can easily be exchanged for the ERC-20 USDC using the USDC token bridge.
Algorand blockchain and the resultant Algorand Standard Asset, come with a lot of benefits, which has made it a hot cake for enterprises and platforms that want to create decentralized apps or bridge the ravine between traditional and decentralization.
Many tokens, though not stable coins, are currently hosted on the Algorand blockchain and using the Algorand Standard Asset for its tokenization. The number will continuously increase as each day goes by.
Article Written By: Sir Tochukwu