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Is Litecoin A Stablecoin? (Explained)

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There’s a special class of cryptocurrencies known as stablecoins. Unlike volatile cryptocurrencies like BTC or ETH, stablecoins have fixed prices, and that makes them easy for everyday use.

Is Litecoin a stablecoin? Does Litecoin have a stable price or share properties with other stablecoins? Read on to find out about that and more below.

Is Litecoin A Stablecoin?

Litecoin (LTC) is not a stablecoin. 

LTC is a decentralized digital currency that arose as a fork project of Bitcoin. LTC copies some of Bitcoin’s features but employs a slightly different mining consensus mechanism. 

Litecoin was Charlie Lee’s brainchild, a former Google Engineer who founded Litecoin in 2011 as a cryptocurrency that works better than Bitcoin. 

Today, LTC holds faster transactions than Bitcoin and uses an efficient Scrypt Proof of Work algorithm for hashing. Also, Litecoin has four times more coin supply, doubles its halving instance, and has twice the reward size per block.

As of this writing, Litecoin ranks as the 18th best cryptocurrency, with a price of $72.42, and has a market capitalization of $5,088,455,353. The 24h trading volume is $780,058,356.

Learn more: Is Cardano A Stablecoin?

What Are Stablecoins? 

Stablecoins are a type of cryptocurrency that have their value tied to an external asset. It can be gold, fiat currency like the US dollar, or an algorithm.

Stablecoins have several uses:

  • They can help a crypto ecosystem withstand volatility in the markets. 
  • They are a medium of exchange between digital currencies and fiat currencies. 
  • As a store of value. 
  • They also offer an easy platform for users to adopt cryptocurrency projects. 

At the time of this article, there are over 180 stablecoins. Let’s look at some common types of stablecoins:

Currency-backed Stablecoins

Currency-backed stablecoins are pegged to fiat currencies. The price of a stablecoin is linked to a currency, like the US dollar at a ratio of 1:1. These stablecoins usually have dollar reserves that have the same value as its backing.

For instance, if a blockchain had 3 million units of a stablecoin, then it must have a similar value to the fiat currency backing it, like $3 million. 

Commodity-backed Stablecoins

Commodity-backed stablecoins are attached to physical tradable assets or commodities.

Examples of such commodities include; precious metals like gold, real estate, and oil. Gold is the most common of these commodities. 

Gold-backed stablecoins are excellent for investors who want to trade gold for cash or crypto. For instance, one token of a gold-backed stablecoin will have a similar value to a single ounce of gold during an exchange. 

Algorithmic Stablecoins

Algorithmic stablecoins are a special class of stablecoins pegged on algorithms. Unlike other stablecoins, these use unique algorithms or smart contracts that track fiat currency and control the coin supply in a given blockchain. 

The algorithm can work in several unique ways, but here’s a simple example.

An upward price movement against a tracked fiat currency activates the algorithm to mint new coins and add them to the supply to correct the value of the stablecoin. Any downward price movement and the algorithm will burn coins to maintain the value of the stablecoin. 

Crypto-backed

Crypto-backed stablecoins depend on other cryptocurrencies as security. Such stablecoins require smart contracts rather than central issuers to buy them. 

You’ll have to lock a specific number of tokens in a smart contract to get a crypto-backed stablecoin.

What Are Examples Of Stablecoins?

There are several types of stablecoins in the cryptocurrency market. Let’s look at some of them:

Currency-backed Stablecoins

Binance USD

Binance USD (BUSD) is a dollar-backed digital cryptocurrency launched in September 2019.

BUSD is under the control of Binance, the largest crypto exchange globally. Binance has backing from the New York State Department of Financial Services. 

It matches the value of the Dollar at 1:1. The token holds a market rank as the 8th most valued cryptocurrency.

Tether

Tether (USDT) is among the stablecoins built on both Ethereum and Bitcoin. Launched in 2014, USDT is currently the most stable cryptocurrency and ranks 3rd with the most market capitalization.

Tether is a dollar-backed second-layer cryptocurrency controlled by Bitfinex and issued by the Hong Kong Tether limited. 

Tether mimics the price of a Dollar. A single USDT holds the same value as $1.

USD Coin

The USD Coin (USDC) ranks as the 4th most valuable stablecoin. It is under the management of Coinbase and Circle via Centre Consortium, its regulated issuer.

It USDC holds a 1:1 dollar to USD value with cash reserves to support all the USDC tokens in supply. 

Commodity-backed

Pax Gold

Pax Gold is a gold-backed stablecoin created by Paxos Standard (PAX) on the Ethereum blockchain. Formed in September 2019 by Charles Cascarilla, it’s an ERC-20 token and is an excellent entry point for crypto investors to tap into the gold trading activity.

PAXG ranks 77th in market capitalization and has the backing of London Good Delivery, which stores its gold in the Brink’s gold vault. 

Tether Gold 

Ranking at position 217 in market capitalization, Tether Gold (XAUt) is a virtual currency built by TG commodities. XAUt allows investors to invest in gold without owning the underlying asset and relieving the cost of storing physical gold. 

A unit of the XAUt token matches the value of a troy fine ounce of gold using the London Good Delivery gold bar. 

Algorithmic-backed

TerraUSD (UST)

Launched in September 2020 by Do Kwon and Daniel Shin, the TerraUSD (UST) is decentralized and an algorithmic stablecoin.

UST was a promising stablecoin till 9th May 2022, when it de-pegged from the Dollar and changed the backing to an algorithm.  Unfortunately, it lost its value in a market crash.

TOR

TOR is a stablecoin built on the Fantom Opera blockchain and depends on demand and supply to maintain its price at $1. The Hector ecosystem forecast TOR as the only decentralized and backed stablecoin in the crypto industry. 

TOR relies on the algorithm to balance the supply of coins.

Learn more: Is Litecoin An ERC20 Token?

Which Is The Best Stablecoin?

No single stablecoin is better than another in the market today.

However, if you’re going to choose a stablecoin for your cryptocurrency transaction, there are some factors that help you choose an ideal one.

  • The market capitalization of the stablecoin
  • Availablity of the stablecoin of popular crypto exchanges
  • The size of the community behind the stablecoin
  • The ratio between the asset and the stablecoin
  • Privacy
  • Security

How Safe Are Stablecoins?

A majority of stablecoins are safe. Some safe stablecoins include USDT, BUSD, and USDC.

However, the defunct TerraUSD is the first stablecoin to crash after de-pegging from the Dollar for an algorithm. 

Can Stablecoins Be Staked?

Yes. You can stake stablecoins. 

When you stake a stablecoin, you help reduce volatility in the market prices and gain reward as interest via staking. You also secure the blockchain network by helping prevent a 51% attack.  

Pros Of Staking Stablecoins

  • You earn interest

Cons Of staking stablecoins

  • Stablecoin can de-peg from its asset, for example, TerraUSD
  • Lack of insurance may lead to loss of investment

Learn more: Impact of Staking On Prices

Final Thoughts

Litecoin (LTC) most certainly isn’t a stablecoin, although it has similar characteristics to Bitcoin. However, there are plenty of stablecoin options in the market today. Depending on what you need, you can opt for any of the choices above.