Cryptocurrencies burst onto the scene about a decade ago and have gotten lots of attention since then. Cryptocurrencies (like Bitcoin) that were developed on a blockchain without a financial referent had trouble settling a market value, making them incredibly unreliable for financial transactions.
Many investors are interested in the ideas behind cryptocurrency but are hesitant to get involved on an investment basis since it is so unpredictable. If you are interested in leveraging the global reach and universal access that crypto can provide but would prefer investing in a vehicle that is more dependable and more traditionally backed, you should consider stablecoins.
What Is a Stablecoin?
Stablecoin is a class of cryptocurrency that ties itself to a more stable asset as a basis for its value, like the US dollar or precious metals.
What Is The Purpose of Stablecoin?
Stablecoin was developed to remain more stable in value and to closely resemble the types of currency that people use the world over already. It can provide a point of price stability in a very volatile market.
What Else Can Stablecoin Be Used For?
Stablecoin can be used as a vehicle to trade crypto into traditional currency. Stablecoins are a cryptocurrency, and trading one crypto for another happens quickly enough for an investor to take advantage of a market trend. However, because stablecoins are linked to a fiat currency, prices remain stable long enough to convert from crypto to real-world assets without losing value.
What Are the Four Types of Stablecoins?
The four types of stablecoins are fiat-collateralized, crypto-backed, commodity-backed, and algorithmic. The least erratic and foremost type of stablecoin is fiat-backed.
What Are Some Examples of Fiat-Backed Stablecoins?
Tether is a stablecoin that has its value tied to the US dollar. While the stability of the pricing makes it more attractive to more prudent investors, Tether is also used as a vehicle to convert other forms of crypto back to US dollars in a timely fashion in order to take advantage of market volatility.
2. USD Coin
Launched in 2018 by CIrcle, USD Coin is a stablecoin that is also pegged to the US dollar. USD Coin exchange is another common way to convert crypto into US dollars, as it is managed by a consortium called Centre that also includes Coinbase and Bitcoin, making transactions smooth and seamless.
3. Dai, Binance USD, TerraUSD
Dai, Binance USD and TerraUSD are smaller yet popular stablecoins, all tied to the US dollar. They all function similarly to each other but have smaller market caps than and different reserve breakdowns from Tether and USD Coin.
A small but growing stablecoin called XSGD is on the horizon. Issued by StraitsX, XSGD is tied to the Singapore dollar. Singapore legislation around the stability of this crypto and its strong ties to the Singapore banks make this a crypto to watch.
If cryptocurrencies intrigue you but the volatility of their market makes you nervous, perhaps investigating these stablecoins is the right way for you to enter the exciting world of crypto.