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Which One Wagers the Best: Fiat Currency or Stablecoins?By Shane Addinall Sep 01, 2022It seems like only yesterday when we could place our first online wagers. Yet here we are in 2022 with not just mind-boggling casino and game choices, but also digital currency options.
Cryptocurrency is a hot topic among various communities around the world including lawmakers, investors, and crypto traders. Gambling with blockchain-based currencies is also increasing in popularity although it is far from taking the lead against traditional fiat-currency wagers.
Of the most debated coins in the crypto collection, are stablecoins and world financial leaders can’t seem to agree on how to deal with them. The primary motivation behind the creation of stablecoins is to provide a less volatile cryptocurrency for exchange. How are these coins faring at providing stable currency and is it a good choice for bets, compared to fiat-based gambling?
Let’s explore what stablecoin gambling offers and compare how it stacks up against fiat wagers.
Fiat Currency vs Stablecoins
We all know what fiat currency is because that is how we transact and purchase goods daily. Fiat has been around for ages, but how does it work and where does it get its worth from? On the flip side, we ask the same questions about stablecoins and attempt to answer these too.
The Emergence of Fiat Currency
The first government-issued money originated from China in the 10th century, but fiat money as we know it today gradually developed over some time and it wasn’t until the 1970s that it became a global norm. US president, Richard Nixon, decoupled the dollar from gold in 1971 and launched government-backed currency to replace commodity-backed currency.
The word ‘fiat’ originates from Latin and means ‘it shall be’ or ‘let it be done’ and all modern fiat money depends on the word of the government that backs it. Fiat currency has no more worth than the paper they print it on, but if the originating country considers it legal tender, fiat is worth whatever the central bank says it is.
Money or commodities were a means of storing wealth and transacting for trade or debt and when the gold standard disappeared in the late 20th century, fiat money became the most widely accepted legal tender for transacting. Apart from the availability and acceptance of fiat, governments also gained the advantage of meeting the demands of their citizens by printing more money.
Features to Keep in Mind
- Because a country’s central bank governs fiat money, there is a sense of stability in times of economic turbulence.
- Storage and management and accessibility of fiat money are fairly straightforward.
- Thanks to its capacity to store buying power, people easily decide on growth and investment with fiat currency.
It is a globally accepted means of trade, and we can buy just about anything with fiat money.
Cryptocurrency: A Decentralised Opponent
Bitcoin arrived as the first cryptocurrency and decentralised money option with much push-back from the traditional finance sector. Shortly after, more blockchain-based coins arrived on the scene and soon there was a trading market for the sector. Unfortunately, because of the volatile nature of cryptocurrencies, there are few willing to accept them.
The reason some adopt digital currencies is that there is no single entity that controls them like traditional financial systems. Decentralised finance (Defi) is attractive to people who want to cut out the middleman, and the costs involved with financial institutions handling their money. Another advantage of cryptocurrency is the blockchain features that make transactions highly secure and swift.
Blockchain experts recognised the gap in the market and introduced stablecoins in response to the unfavourable volatile coins rejected by many. The original cryptocurrencies like Bitcoin and Ethereum share a common trait with fiat, nothing backs the value of the currencies. Instead, these coins and their value depends on the basic principle of economics - supply and demand.
Stablecoins, on the other hand, resemble money from earlier eras because it has collateral backing. The value of stablecoins depends on what they pegged the specific coin to. External references like commodities or algorithms that determine supply levels, allow these coins to be much less volatile than standard cryptocurrency.
They can peg these digital assets to fiat currency, foreign exchange-traded commodities, and precious or industrial metals also referred to as traditional financial investment tools. Sometimes, the stablecoin might have other cryptocurrency backing or non-collateral backing.
Features to Keep in Mind
- Stablecoins are available 24 hours a day via the internet, almost anywhere in the world.
- Transactions are super-efficient, and the lack of a middleman drops costs substantially.
- Stablecoins are native online currencies and very adaptable.
Transactions only require crypto wallets in the peer-to-peer network.
In order to stabilise the value of these crypto coins, they maintain a reserve of a commodity as collateral. Four types of stablecoins exist with different collateral to stabilise their value.
Fiat-collateralised stablecoins are pegged to one, or more, fiat currencies, with the US dollar being the most popular fiat collateral. This category of stablecoins maintains a steady value according to its pegged currency and this should make it much less volatile than the original cryptocurrency.
The most popular fiat-backed stablecoin is Tether, and it has the largest market capitalisation, making it the most liquid. Although the coin experienced a big drop in the value of approximately 1% in May this year, it remains the best stablecoin. A major advantage of Tether is that almost all crypto exchanges around the world use it.
Other popular choices in the fiat-backed category include two more dollar-pegged coins - USD coin and Binance USD, as well as the Euro-pegged coin – EUROS – which is the largest Euro-backed coin.
Regardless of the relationship these coins have with different fiat currencies, some countries prohibit the use of cryptocurrencies and regulators continue to push for Defi regulations.
It may sound counterintuitive, but some stablecoins have cryptocurrencies as collateral. When they peg its value to a crypto reserve, the stablecoin is over-collateralised. This means that the value of the pegged cryptocurrency must always exceed the value of the stablecoins issued. An example of this is a coin valued at 1 million will have a cryptocurrency worth 2 million backing it.
The insurance against a 50% drop in the value of the pegged cryptocurrency allows for lower volatility while keeping the coin purely blockchain-based. MakerDAO’s DAI is a crypto-backed stablecoin and although it is pegged to the US dollar, Ethereum and other cryptocurrencies worth 150% of the DAI stablecoin in circulation back it.
The third type of stablecoin has its value pegged to physical commodities like precious metals and oil. Collateralised by the values of gold, silver, oil, and sometimes real estate, these stablecoins hold the values of the real-world assets backing them.
Preferred by investors with an interest in these commodities, gold and oil-backed coins allows people to easily invest in highly sought-after commodities, without worrying about how they will sell the materials when needed. Examples of these coins are Paxos Gold and Tether Gold.
These stablecoins may or may not hold physical reserve assets as collateral. Instead, they differ from normal cryptocurrencies because algorithms control their stability by limiting supply. Essentially, the algorithms and computers that run the formulas play the same role as a reserve bank do with fiat currency.
The only challenge with this type of stablecoins is the lack of physical collateral, as felt by the investors of TerraUSD (UST) on 11 May, when its pegged token Luna slumped more than 80% overnight and dragged UST values down by 60%.
Online Gambling: Stablecoin or Fiat Wagers?
With the convenience, speed, and low cost involved with blockchain currencies, the emergence of crypto casinos was inevitable. Now that stablecoins present a less volatile choice to gamblers, the natural question is whether a crypto casino is better than one that only accepts fiat currencies.
Let’s do a quick comparison of stablecoins and fiat to help us conclude:
- This category of cryptocurrency presents us with a more reliable source of tradable currency making it a highly liquid option. The pegged feature allows for quick conversion from crypto to fiat.
- Stablecoins present two advantages: the decentralised feature of blockchain technology, plus greater stability from solid collateral.
Although stablecoins are better equipped to be a reliable means of trade, few accept it. However, many online casinos that accept cryptocurrency have stablecoin options.
- Fiat money is available anywhere and when gambling online, players only need the right type of currency for their region to enjoy a wide variety of casino options. It is a highly reliable currency.
- The value is determined by central issuers, and this causes stability.
They accept fiat currency anywhere and can pay for or purchase almost anything.
What’s the Verdict?
Depending on the player, both fiat and crypto gambling with stablecoins present advantages. The lower volatility of stablecoins makes it a far more attractive choice in the crypto space and this drives its popularity, specifically fiat-pegged coins.
A punter’s preferences determine the verdict here because both options have significant advantages. For the best online casinos, visit our casino guide or check out our bitcoin casino list for the top crypto gambling options.
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