Cryptocurrencies have a bad repute for extreme price volatility. Bitcoin has proven to make skyrocket high, dip down to 50% and rebound again. Every cryptocurrency fluctuates wildly, so investors are attracted to them, but carry a high risk.
Price stability is valuable, but rare in the crypto landscape. So, stablecoins emerged to resolve the stability issue. Stablecoins are also crypto assets but work differently. They operate on a blockchain system, but their value is pegged to government-supported currencies like dollars, euros, and gold.
Tether or USDT is the pioneer stablecoin and has the largest market cap followed by Coin [USDC] and Binance [BUSD]. All three are pegged with the United States Dollar. There are dozens of cryptocurrencies available with an aggregate market cap surpassing $100 billion, but none are regulated.
Without regulations and monitoring, there is no assurance that investors get what they are sold. Even after being pegged some stablecoins dip below the referred fiat currency value. So, what is the point of owning stablecoins?
Why use stablecoins?
Stablecoins allow investors to seamlessly transact in cryptocurrencies like BTC or ETH. Stablecoins act as a bridge between the highly volatile cryptocurrencies and the stable external assets [government-regulated currency or commodities].
Trading with stablecoins rather than USD [fiat currency] allows you to maintain different crypto transactions effortlessly within the crypto exchanges without paying high charges for cash out. You can keep cash invested on the crypto exchange, and thus hold cryptocurrencies with less volatility risk.
Sometimes crypto traders own stablecoins for advanced investment like staking and lending. New investors use it to avoid trading costs because several crypto exchanges don’t charge on conversions from US dollars to stablecoins and vice versa.
International remittance is another stablecoin use. You can send funds overseas instantly but carries an inherent risk. Stablecoin is private money formed getting support from the company but not a government. So, there is a risk that stablecoins are not as steady as they are promoted to be. There is also the concern of whether the company that claims to support it with equivalent value is doing so or not.
Is stablecoin a great investment?
Stablecoin is used as a niche currency in crypto land. They don’t make great investments. However, you can use them for digital transactions like digital asset conversions – stablecoin to fiat currency and vice versa.
The Crypto trade market fluctuates quickly, so it is easy and fast, and cheap to exchange tokens for stablecoins rather than trading coins for real dollars using a bank account. Bitcoin can be converted to USD Tether pegged with $1 quickly and it can stay live on the exchange you are registered with and hold its value.
The stablecoin can be used to exchange other coins. In case, you plan to convert BTC directly to the American dollar, it can take a long for the banking process and off the crypto exchange. You can lose money in a transaction between two different currency types.
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