A Stablecoin has become one of the most well-known initiatives in the crypto realm for resolving volatility concerns. Anyone engrossed in the crypto world knows that cryptocurrencies and tokens are highly volatile. Cryptocurrency prices fluctuate dramatically in response to changes in market conditions, supply, and demand. It is important to remember that the cryptocurrency market’s extreme volatility could be a major source of anxiety for investors from all around the world.
As a result, stablecoins were created as a dependable solution to the crypto domain’s excessive volatility. Algorithmic stablecoins are dubbed as the “purely stable” decentralised crypto tokens among the several varieties of stablecoins. But why? Is their stability real? What are the benefits of algorithm-based stablecoins? And how to build one? Let us find that out.
What are Algorithmic stablecoins?
Stablecoins based on algorithms does not have any collateral. As a result, they’re also known as non-collateralized stablecoins. Stablecoins based on algorithms are whole new types of cryptocurrency designed to increase price stability. It also aids in the balancing of supply and demand for the asset in circulation. Most notably, compared to collateralized stablecoins, algorithm-based stablecoins have a much higher capital efficiency. So, it has a lot of benefits!
How to create an Algorithmic Stablecoin?
1. What kind of stablecoin do you want to develop?
There are two types of stablecoins: collateralized and non-collateralized stablecoins. As a result, it’s difficult to say whether one type of stablecoin is better than another. If you want to ensure long-term stability, algorithmic stablecoin is the best. For short-term stability with a dependable underlying asset, collateralized stablecoins are the best.
2. The technology and the platform to use
After you’ve narrowed down the type of stablecoin you want to construct, you’ll need to choose a platform to build it. Initially, Ethereum was the only platform used to create stablecoins, but that is no longer the case. In 2016, there were approximately 11 stablecoins on the market, with ten more added in 2017. However, more than 70 stablecoins are in use now, with another 140 under development.
With the advantages and disadvantages of all the platforms available, you can make an informed decision about the platform you wish to use. After you’ve decided on the platform and technologies you’ll use to create stablecoins , you will need to move on to the next phase, which is to think about liquidity.
3. Development, Blockchain Platform Integration, and Mainnet Launch
The next step is to develop the system once the designs are complete. You construct smart contracts to communicate with a stablecoin during the development stage, and you launch nodes on the blockchain platform you utilise. The stablecoin’s functionality will be created and integrated to the blockchain backend before it is launched on the test net. If you’re building a stablecoin on the Ethereum platform, there are several testnets available.
Request that various groups of people test the quality of your developed product on the internet and submit input for improvement. Fix any problems that arose during the testing phase. You can launch the stablecoin on the main net once all of the issues get resolved.
The goal of cryptocurrencies has always been to create a digital asset that is less volatile and more liquid. Stablecoins are regarded as the holy grail of the crypto sector since they enable and facilitate frictionless transactions. Not only between stakeholders trading with cryptocurrencies but also between parties who may need to shuttle between crypto and fiat currencies.