Price volatility is still a major issue for all market players with the rapidly developing cryptocurrency sector still in its early stage. Another problem is to liquidate your digital assets for payments in cash. Since crypto markets are worldwide and the regular banking system is trying to catch up to innovation speed, cashing your cryptograph is a little tricky.
You can’t always rely on a steady-price cryptocurrency nor can you anticipate it to be easy to make payments or to transmit them to your bank. Stablecoins are a unique crypto asset class that contributes to solving volatility and unusability concerns, increasing the standard of comfort for both novice crypto-lovers and experienced investors. Stablecoins are frequently seen as the entryway to crypto markets because to their reliability and flexibility.
What’s a steady coin?
A stablecoin is a sort of cryptocurrency attached to a 1:1 ratio “stable” asset. In other words, Tether and USDC stablecoins are always near to, if not precisely, $1.00, the price for one tether and one USDC coin. Another form of stable assets, such as commodities and precious metals, may be used to support a stablecoin, Goldcoin as a prominent example of a physical gold-backed stablecoin.
Each stablecoin has a reserve of any asset that supports it. As a rule, its price stays fluctuating and more appropriate for payments. You can simply pay your stablecoins 1:1 dollars on numerous exchanges and have them deposited to your bank quickly at minimal cost, and in some cases at zero cost.
The advantages of stable coins
Since the transfers between crypto markets and fiat markets are so easy, stabilcoins have minimal volatility and a very high degree of liquidity. One of the earliest stable currencies, USDT (Tether), was so trustworthy and steady as to use USDT in 2021 to buy more than 75% of Bitcoin. This high degree of liquidity and utility gives crypto-investors even more stability in an otherwise extremely turbulent market.
But not all that stablecoins can accomplish. These flexible digital assets come with a range of extra characteristics and advantages. Here are only a few of them:
Stablecoins might be an asset of safe refuge. You might like to explore a stable currency supported by anything other than USD, particularly if you wish to protect your investment during a market slump. Goods and precious metals such as gold were traditionally sought after in the period of high volatility for the “safe haven” assets. In the past, real gold was seen by investors as the preferred safe haven. Physical gold still has its place in modern times, but a reliable gold-based coin offers the comfort of gold as well as the advantages of greater use, liquidity and stability.
Unlimited payments using stablecoins are feasible since they are connected to global crypto marketplaces in real-time. Forgiveness is cheaper, faster, and more convenient when a worker lives in another nation is using stablecoins.
One difficulty for multinational firms is how to compensate staff from several areas. With increasing remote work, companies can have access to a worldwide pool of employees, but how can they pay their workers efficiently when they live in a multitude of countries? It makes sense to use stable currencies to pay for things in our digital economy.
Access to the world of crypto markets is another great benefit for stablecoins. You may simply convert stablecoins to other digital assets if you choose to wet your feet on DeFi apps, join the Initial Exchange Offering (IEO), or join a meme on Twitter crypto prize competition.
Stable coins fiat-backed
With fiat support, crypto-platforms and exchanges effectively have a two-way bridge between crypto-markets and the traditional money system for their clients. That’s because the US dollar is the international reserve currency at this moment and virtually all countries base their currency on it.
The majority of the exchange, including the Coinbase (USDC), Gemini (GUSD) and Binance (BUSD), now has its own stablcoin. They usually keep a 1:1 fiat cash reserve, enabling them to quickly move back and forth without problems. Cashing off the USDC or GUSD costs next to nothing, and bank transfers are free or near to them due of their stability.
Stable coins supported by commodity
Stablecoins may be supported by assets other than fiat money or even an asset basket. But stable coins supported by commodities provide an option that lets investors diversify their holdings. Many other commodities may be used to support a stablecoin, but gold is the most preferred, as for hundreds of years it has been a safe haven.
A precious metal-supported stablecoin with gold as its peg delivers the best of both worlds with digital capabilities. It provides a proven hedge against traditional fiat currencies and stock markets and offers a high level of ease and use.
Commodity-backed stables usually take a certain quantity of the commodity to produce the basic pricing. For example, with Goldcoin, 1 ounce of gold is equal to 1,000 Goldcoins.
It is even more illuminating that gold may be split by using stablecoins, which means that more individuals can actively invest, since they do not have to purchase a full gold bar. You can purchase any quantity of gold-backed stablecoins you wish.
Stable algorithmic coins (crypto-backed)
Algorithmic stablecoins utilise over-collateralization of other assets like Ethereum, instead of utilising commodities or currency for backing. This means that the platform or exchange that produces the stablecoin gives a 1-1 ratio to offset the crypto-asset volatility. Examples of stable algorithm include one of the initial stablecoins of crypt, DAI, and AMPL.
What about stablecoins next?
The expanding crypto markets and the increasingly stable coinage of crypto have made the millions of new fans, investors and traders an established virtual onramp and offramp. There is nothing to say about the new characteristics and shapes of these highly prized digital assets, but we know they’re here to stay.