What is a Stablecoin?
If you’ve dabbled in cryptocurrency, then you may have heard the term “stablecoin” – or maybe you’ve even bought some. But what is a stablecoin and what is it good for? Read on for a complete guide on what stablecoins are and what their purpose is!
What Is A Stablecoin?
Stablecoins are digital currencies with a fixed and stable price, typically pegged to fiat currencies. This type of cryptocurrency is usually used as collateral for trading or as a payment method in digital marketplaces.
Stablecoins offer a more solid alternative compared to the volatility of other cryptocurrencies, so people can make transactions easier. Because they’re typically pegged to stable assets, stablecoins provide a medium between the volatility of crypto coins and the stability of fiat.
The four categories of stablecoins are:
- Traditional collateral: A fiat-backed stablecoin is pegged to existing fiat currencies, like the U.S. dollar. This is the most common stablecoin type.
- Crypto collateral: These types of coins are backed by other cryptocurrencies.
- Algorithmic: Algorithmic stablecoins don’t use any collateral. Their price stability is set by algorithms and smart contracts that adjust the token supply every time market conditions change.
- Commodity-backed: As their name implies, commodity or asset-backed cryptocurrencies are backed by physical assets. While gold is the most popular collateral, some coins may use silver and oil.
The Top Stablecoins On The Market
If you’re interested in knowing more about stablecoins, here are the top stablecoins with the largest market capitalization available today:
- Tether (USDT) is the largest stablecoin by market value.
- USD Coin (USDC) is accepted by most major exchanges and seeing increased usage in DeFi and gaming.
- Binance USD (BUSD) is a coin that offers zero-fee exchanges for fiat conversions on Binance.
- DAI (DAI) is typically used on DeFi services but can also be used for trading.
Why Are Stablecoins Important?
Stablecoins are an important part of the crypto ecosystem, but why? Here are three reasons why stablecoins are essential:
Enabling Seamless Cross-Border Payments
Stablecoins cut out the middleman of central banks and money changers. For example, if you’re an American who wants to pay a client in China with local currency, you may need to go through several costly hoops.
With stablecoins, you can simply trade your fiat into a token representing the Chinese yuan and send it immediately to your client.
Offering Stability Of Price
Stablecoins represent financial stability in an often volatile crypto market. In the same vein that traditional investors sell their stock for cash or bonds, crypto investors can trade their tokens for stablecoins if they think that the price fluctuations are too much.
Increasing Transaction Speed In The Crypto Market
Stablecoins help investors move faster in the fast-paced crypto market. Instead of having to wait days for a fiat transfer to clear, the stablecoin holder can instantly buy the tokens they want with stablecoins.
What Can You Do With Stablecoins?
Stablecoins have many uses for you as an investor, but what are they? Here are three essential uses for stablecoins!
Save Assets And Profits
Stablecoins is a fast and affordable alternative to cashing out a crypto asset into fiat. Whenever you want to make a profit from selling your digital assets, you can always convert them into stablecoins. This way, your profit is secured within seconds flat and with minimal fees.
Much like traditional fiat, you can place your stablecoin into a savings account and earn interest on it. Since the demand for stablecoins usually exceeds its supply, people with stablecoins to lend command higher interest rates than fiat currencies.
Send Money Easily Worldwide
Stablecoins make transferring money easy. You can send thousands, even millions of dollars to anyone in the world within seconds, all without having to pay steep transaction fees.
Where Can I Buy Stablecoins?
You can find stablecoins in almost all cryptocurrency exchanges because they’re usually the first thing you buy before trading for other cryptocurrencies. All you need to do to buy stablecoins in most crypto exchanges is make a fiat deposit and then exchange your deposit for stablecoins. Some exchanges even support direct stablecoin purchases via credit cards.
Is Investing In Stablecoins A Good Idea?
So, are stablecoins viable for investments? The answer is yes. If you don’t want to experience the volatility of other crypto but still want to make profits on your investments, stablecoins can be a viable alternative. You can potentially earn even more by staking or lending your stablecoins.
However, since they’re called stablecoins, don’t expect any major price jumps. Thus, stablecoins generally fall into low-risk, low-return investments.
Stablecoins are a safer, less-volatile option to cryptocurrency tokens. If you’re a low-risk investor, you can also invest in them as a safer alternative to the volatility of crypto.
Looking to make more money from NFT collections? Tokenfy is here for you! Visit our website to see how our NFT launchpad services can jumpstart your foray into the NFT space.
ETH is widely used in crypto markets for purchasing tokens, paying gas fees, and investing in crypto assets..
ADA, run on the Cardano blockchain, is one of the biggest cryptocurrencies outside of Ethereum and Bitcoin..
Like Bitcoin and Ethereum, Solana (or SOL) is a digital currency that exists exclusively online. Initially released in 2019..