Any smart crypto investor wants their investment to grow and make a profit. However, due to cryptocurrencies having high volatility, the investments you’ve bought today can be priced differently tomorrow.
To contradict this and add stability to cryptocurrencies, the ‘stablecoin’ is created. Made in 2012 by J.R. Willet, stablecoins have allowed countless investors to enjoy relatively safer and stable investments. So should market changes happen, these stablecoins’ value can remain relatively unscathed.
At Casino Days, you can learn about this incredible cryptocurrency and how you can enjoy investments you can trust.
When stablecoins were developed, it was to stabilise cryptocurrency prices and lessen their volatility by pegging their value to relatively secure and stable government-approved assets like fiat currencies. Examples of these tokens include Tether (USDT) pegged to the US Dollar and Digix Gold Token (DGX) associated with gold.
Stablecoin value maintenance
To maintain stability, stablecoins utilise the ‘backing’ or ‘collateralisation’ process. Through this collection of calculations, the stablecoin network purchases reference assets, such as fiat and precious metals, and places them in a reserve to be associated with available stablecoins.
What lessens stablecoin volatility?
Stablecoins can be pegged to different fiat currencies or assets to lessen their volatility. However, remember that these stable assets can still occasionally change in value. This means you need to choose a stablecoin whose asset it’s pegged to is more stable than others, thus allowing you to keep high-valued investments at all times.
With various assets to be pegged to, each of the stablecoin tokens is stable through different means. Below are the traditionally pegged assets stablecoins have connected themselves to:
Most stablecoins are mostly associated with and pegged to fiat currencies. After all, these are regulated by the government, thus lessening the chances of sudden value change. This nature of fiat then imprints on the stablecoins connected with them.
The most popular fiat currency stablecoins are connected with the US dollar. In fact, some stablecoins’ names are associated with the US dollar. The most well-known example of this is the USD Coin (USDC).
However, remember that fiat currencies are prone to inflation from time to time. So always be aware of the status of the US dollar or any fiat-pegged crypto token.
For centuries, precious stones like gold and silver retain their value and demand since they’re incredibly rare to mine. Because of this, stablecoins pegged to them are some of the safest options to invest in. After all, as long as people continuously want precious metals, the tokens pegged to them stay valuable. An example of this kind of precious metal-pegged stablecoin is PAX Gold (PAXG).
Despite cryptocurrencies’ highly volatile nature, they are still used by some stablecoins as backing assets.
To combat the natural volatility of cryptocurrencies, crypto-pegged stablecoins place their chosen cryptocurrency in reserve and increase or decrease its supply depending on its price changes. Thus allowing the stablecoin itself to more or less retain its current value. Examples of cryptocurrency-pegged stablecoins are those made within the Ethereum blockchain such as DAI and USDC.
Benefits of investing in stablecoins
Now that you know what a stablecoin is, here are some of the benefits it can give you should you choose to invest in it:
Less volatility investment
As mentioned above, cryptocurrencies are known to be incredibly volatile. Any high-value investment can suddenly drop in the blink of an eye depending on how the market behaves.
Fortunately, you can invest in a stable cryptocurrency through stablecoins. Since this cryptocurrency is associated with less-volatile assets like fiat and gold, their stability becomes imprinted on the stablecoin pegged to them. Price slippage then reduces, making them ideal for transactions.
Since stablecoins are decentralised, you won’t have to worry about any additional bank processes when transacting. Unlike your bank transactions that can last for hours to even days, transacting with stablecoins is relatively quicker and easier. After all, stablecoin transactions don’t follow the government-mandated processes that banks do.
Another incredible benefit of having stablecoins is it allows you to earn more through interest rates. As the blockchains of your chosen stablecoin are used by developers to create new programs and systems, you get the opportunity to fund these new digital creations. When you do, you will be awarded interest rates for taking part in growing the overall cryptocurrency ecosystem.
Some of the best programs you can fund with your stablecoins include dApps such as Aave, Compound and dYdX. So if you’d like to grow your crypto investment more, take the time to invest in programs within the blockchain.
Affordable transactions costs
Investing in a stablecoin comes with relatively affordable costs. Whenever you buy or sell your stablecoins, you won’t have to spend a lot on transaction fees. For example, the stablecoin Tether has free transaction fees in both deposits and withdrawals. In contrast, Bitcoin may have free depositing fees, but withdrawals have fees that differ based on the current value determined by the blockchain network.
Much like other cryptocurrencies, stablecoin transactions exist in their own blockchain, a decentralised network headed by countless nodes. For every one of these transactions you make within this network, hash codes are created.
These codes serve as the stablecoin transaction’s fingerprint, allowing nodes within the chain to know that the transaction has already been validated and verified.
This process prohibits unauthorized access to hackers. This is because as they attempt to alter these transactions, they will need to tamper with every hash in the blockchain network node at the same time from various points on the globe.
So if you’re looking for investments worth your while that offer countless benefits and growth opportunities, then find an exchange and choose a lucrative stablecoin to invest in today.