The volatility of cryptocurrencies is well known. This feature of digital assets provides a lot of opportunities for earning, but prevents their mass adoption for everyday use. Therefore, a special “stable” type of cryptocurrency was invented – stablecoins.
Stablecoins are cryptocurrencies with a fixed value, which is provided by peg to the price of a certain third-party asset that has an established position in the market. Most often, such cryptocurrencies are tied to fiat money, precious metals or oil. As a result, stablecoins are more stable and less prone to significant changes in value than other cryptocurrencies. Due to their stability, they have become indispensable in the cryptocurrency market.
At the moment, the most popular are:
- Tether (USDT).
- USD Coin (USDC).
- Binance USD (BUSD).
Since these coins are actively used to fix profits and protect capital from high volatility, their capitalization grows during dump periods. Despite the fact that the value of these coins is pegged to USD, different companies are behind their minting. Therefore, for the sake of financial security, it is worth taking care of diversifying your portfolio of stablecoins and exchanging part of BUSD to USDT.
What are the benefits of stablecoins
Stablecoins combine the advantages of cryptocurrencies and remain in direct connection with the real exchange rate of the respective currency.
Stable digital assets provide an opportunity to get started with cryptocurrencies from a good starting point. Using a virtual analogue of the dollar, euro or other fiat currency, it is much easier to determine the investment goals. This is especially attractive for traders who come to the cryptocurrency market from traditional markets and meet already familiar investment instruments in a new environment.
Many note that one of the advantages of stablecoins is their relatively low volatility, which helps to avoid sudden price changes. At the same time, they have all the advantages of cryptocurrencies, including the possibility of secure, anonymous and fast transactions within the blockchain.
With the help of stablecoins, people will be able to provide safe and relatively stable storage and accumulation of their funds in a more familiar form for them, with the possibility of receiving passive income in the future. For those unfamiliar with the specifics of cryptocurrencies, stablecoins are the perfect introduction to the technology, allowing a smooth introduction to how virtual currencies work.
Blockchain technologies increase the reliability of storage and accounting of transactions. Such a database is almost impossible to hack or distort the information contained in it, while maintaining the transparency of transactions between users.
Disadvantages of stablecoins
However, stablecoins also have disadvantages, which are associated with risks when transferring funds to another party. It is never known who requested the transaction – an ordinary user who wants to try cryptocurrencies, or a member of a criminal group using stablecoins to fund their activities. In such cases, it is difficult to trace the identity of the recipient, since all transactions on the blockchain are based on the trust of both parties.
Conclusion
Stablecoins have great potential for development in the cryptocurrency market, despite some of their shortcomings. If the cryptocurrency market continues to expand, then stablecoins can become a universal means of exchange and payments.
However, there is a threat to the development of stablecoins – state-owned cryptocurrencies that can replace commercial stablecoins. However, stablecoins will have a special place in the cryptocurrency market, regardless. The question remains who will own these tokens. In general, stablecoins have the potential to become more and more popular and useful, bringing together the real financial world and the cryptocurrency market.
Jorden Smith is a passionate writer and researcher with a knack for exploring news and website reviews. With a keen eye for detail and a love for uncovering hidden gems, Jorden’s work is always thorough and informative. When not busy writing, Jorden enjoys traveling and discovering new places. Stay tuned for more insightful articles from this up-and-coming writer.