Are stablecoins good for crypto investors?

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 So, there are a lot of questions regarding stablecoins in the crypto investors’ minds; as we know, the crypto ecosystem is constantly evolving, and a lot of new types of options are coming in for people to try their hands on. What is it? How does it maintain its price? Is it rewarding for crypto investors? And so on. The train of neverending questions will finally be answered in this blog. Sit tight, and read on…

What is a stablecoin?

Any cryptocurrency that leverages the value of a more stable asset like the US dollar or Euro to be less volatile is a stablecoin. Hence, the bottom line is that the risk associated with stablecoins is way lesser than other cryptocurrencies that are not pegged to any stable asset.

Power of stablecoins

The stablecoins derive their stability from traditional assets such as gold, fiat currencies, and commercial papers (short-term debt from corporate bodies). The basic concept behind this is that the stable reserves act as collateral as far as the stablecoins are concerned. So, the asset reserve is depleted by an equal amount each time stablecoin owners derive cash profit from their tokens.

Stablecoins that are available

In 2014, Tether(USDT), the largest and the first ever stablecoin saw its inception. Since then, traders buy Tether to fulfill various purposes. According to the official site, cash, cash equivalents, short-term deposits, and commercial paper account for roughly 85 percent of Tether’s assets. Because Tether owns USDT, Tether should have $1 per each stablecoin on hand.”

Circle launched USD Coin, another popular stablecoin, in 2018, which is linked to the US dollar and short-term US notes. According to Circle, treasuries have a circulating supply of $49 billion of the coin. Other popular stablecoins include Dai, Binance USD, and TerraUSD, but they have smaller market caps.

How to use stablecoins?

Stablecoins are used in the crypto exchanges to make the trades seamless. Consider the purpose of stablecoins as that of poker chips in the crypto exchanges. For instance, traders convert fiat into a stablecoin instead of directly purchasing Bitcoin using fiat money, such as the USD. Then, they exchange the stablecoin for other crypto assets, such as Bitcoin or Ether.