As more people want to be a part of the cryptocurrency market, there are so many different coins available on the market. Some of them or not still sure about investing in cryptocurrencies, and they are looking for a more convenient way to participate in this industry. Some investors cannot rely on cryptocurrencies. They prefer traditional currencies. But they cannot ignore the fact that the value of Fiat currencies decreased. That is why we have stablecoins today on the market. How well do you know stablecoins? Before investing in just a type of currencies, you should read this article to the end.
What are stablecoins?
Stablecoins are in the new class of assets in cryptocurrencies. The value of these types of assets is tied to an outside acid such as the US dollar or gold. They offer Price stability. Cryptocurrencies such as Bitcoin and Ethereum are great means of exchange. By using this type of cryptocurrency, you don’t have to use any third-party or central authority. But there is something that not every investor can tolerate. The cryptocurrency market is so volatile. Price can change dramatically overnight.
There are some investors who want to use a decentralized payment system that is secure and private, but they don’t want to be in a volatile market. Nowadays, there is stablecoins offer a great chance for this type of investor. Now they can enjoy a circular and private payment of cryptocurrency in a volatility-free market. These coins are backed by Fiat currency such as the dollar or any other commodity.
Understanding stablecoins better
we all know that bitcoin is the most popular in the world. But we all have seen high volatility in its valuations. The price of Bitcoin can rise dramatically over one month or drop Sharply overnight. The level of volatility in its market is so high that even intraday investors cannot rely on prices. This characteristic makes cryptocurrency unsuitable for everyone and everyday use. A currency can be reliable if its value remains relatively stable over a longer time. In fact, the adoption decreases if people find its purchasing power decreasing gradually.
In fact, a good cryptocurrency would keep its purchasing power and have the lowest inflation. In that case, people tend to spend their coins instead of saving them. Stablecoins borrow the stability of fiat currencies. But how price remains stable for fiat currencies.
Stability of fiat currencies
There are central authorities in the fiat currency market known as central banks. Fiat currencies are backed by precious metal or forex reserves. These assets are some sort of collateral, so the price of these currencies remains free of volatility.
When everything is complicated n the market, and there is great volatility in the market, the central authority will act on behalf of having a stable market. They will manage the demand and supply of a currency and keep the price stable.
Stablecoins are a great bridge between a secure and private market that do not need a central authority to manage it and a more stable coin that has a stable value.
Different types of stablecoin
Nowadays, there are so many different stablecoins on the market. Each of them uses a different asset to back their value. Here we will talk about different collateral that can be used for a stablecoin.
Fiat currencies are the most popular collateral for cryptocurrencies. And the dollar, among other fiat currencies, is more common to back stablecoins. There are other stablecoins that use different fiat currencies too.
Gold is a precious metal that can be used as collateral for stablecoins. Silver is another precious commodity to back the value of stablecoins.
Well-known cryptocurrencies such as bitcoin and Etherum can be used to back stablecoins too.
If you are looking for a good stablecoin to invest in, you should know that there are so many different cryptocurrencies on the market. You can choose to do the job.
Libra or Diem is one of the most popular stablecoins in the market. It was introduced by Facebook and gathered a lot of attention. Countries like China are afraid of having this stablecoin as a competitor treat.
Facebook, at first, wanted to use a group of currencies to back this stable coin. But later, they decided to use different stablecoins that are backed by different currencies.
Tether is another stablecoin that is called USDT too. It is one of the first stablecoins on the market, and it is backed by the US dollar. One of the most important and interesting things about this stablecoin is that investors can use 82 to take advantage of arbitrage opportunities in different exchanges. In this case, the investors would benefit from taking profit from different prices on different exchanges. Today there are so many countries that use this stablecoin to send millions of dollars of value across the border.
Dia is another stable coin Betty’s on the Ethereum blockchain. It was created in 2015, and it’s one of that stablecoin that is backed by both the US dollar and ether. This stablecoin is different from other stablecoins in the fact that it is not managed by a central authority but by smart contracts of the Ethereum blockchain. Turn the Apple light rooms cannot be changed.
Stablecoins in a nutshell
Stablecoins are cryptocurrencies that are backed by a Fiat currency or precious metal or even any precious commodity. They are perfect for investors who cannot tolerate the high volatility of the cryptocurrency market.
They are secure and private such as cryptocurrencies. But they are not as volatile as them. In fact, to have the stability of fiat currencies and the decentralization of cryptocurrencies at the same time. By using this stablecoin, the investor can benefit from the cryptocurrencies without thinking about their valuation. The purchasing power of these assets is stable, and their price does not change dramatically. So if you are looking for a safe asset in the cryptocurrency market, you should go for stablecoins.