Stablecoins: What they are and when you could consider investing in them
by Sumona Finance 10 May 2022
Now, many people who are just starting their careers as crypto investors face huge problems associated with high volatility.
The cryptocurrency market is highly volatile, so the price of most assets like Ethereum, Bitcoin, or others can skyrocket or collapse. Given the volatility issue, crypto enthusiasts are looking for ways to protect their funds. Stabilizers can help with this.
It is a special kind of DeFi asset that has a fixed value. This is because they are pegged to the price of fiat currencies like the US Dollar, Euro, and so on.
Clients who own stablecoins do not have to worry about the rapid loss of their funds. To get these pegged cryptocurrencies, people only need to use the stablecoin DEX, which allows them to swap tokens to stablecoins and vice versa quickly. Keep reading to learn more about stablecoins and the benefits of investing in them
What are stablecoins?
In the simplest sense, stablecoin is a crypto token, the price of which is pegged to a stable real-world asset. These include fiat currencies, precious stones, and gold. It should be said that most pegged assets are pegged to the US Dollar. That is why they are similar to the currencies that customers use every day.
The primary purpose of stablecoins is to save users from the volatility problem that plagues them while trading with other coins. During a transaction between various digital assets, crypto investors should not worry about a possible collapse in prices and the loss of their funds.
Stablecoins have reserves of more than just fiat currencies to maintain a stable value. They may have altcoins, tokens, precious stones, and much more. All the money that is in reserve serves as collateral. When a client withdraws his pegged cryptocurrencies, the same number of tokens is taken from the reserve. Now, there are many such tokens. One of the most popular is Tether (USDT), as it is the first stablecoin created in 2014.
How to apply stablecoins?
Clients should understand that the use of stablecoins dramatically facilitates and speeds up the process of swapping coins, which, for example, are located in various blockchain ecosystems. So, if users need to exchange Ethereum for Solana, they should first exchange ETH for stablecoins, such as USDT.
Then investors need to purchase Solana coins using pegged assets. Conducting operations in this way allows you to save funds on commissions and protect assets from high volatility.
There are many other uses for stablecoins that most advanced investors apply. This includes staking, borrowing, lending, and yield farming.
Clients can lock their pegged assets in the blockchain and then profit from it. Such crypto enthusiasts essentially become liquidity providers and earn interest from it. The money comes from fees people pay to carry out a financial transaction.
Finally, stablecoins can also be used for international money transfers. Clients can transfer funds to other countries without paying any fees. But it should be remembered that such financial transactions are precarious because there is almost no regulation by the relevant state bodies.
What are the benefits of investing in stablecoins?
If clients are still not sure whether to buy pegged cryptocurrencies, it is worth checking out the list of benefits that these assets offer. Stablecoins propose several advantages that can provide secure swaps with low volatility. Below, there are a few of the main ones.
- No fees for transactions. Most exchanges like Coinbase, Binance, and others do not require money to conduct financial transactions with stablecoins.
- Complete anonymity. Since pegged assets are built on DeFi technologies, all swaps are anonymous and safe.
- Low volatility. With sufficient reserves backing these tokens, their price remains stable even during a bear market.
As you can see from the information above, stablecoins are an excellent investment idea for those who want to protect their assets from constant price changes in the market. In addition, you can efficiently conduct transactions between different blockchain networks quickly and cheaply.
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