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Crypto dollar or stable coin is one of the varieties of cryptocurrency that allows you not only to earn, but also protect your investment portfolio from high market volatility and potential losses. We will tell you what a crypto dollar is, whether it is worth investing in it, and how to choose an asset for investment in 2022.
What is a crypto dollar?
Crypto dollars are called stable coins – this is a cryptocurrency whose exchange rate is pegged to the dollar. As a rule, such a currency is equivalent to the dollar in a ratio of 1:1. The course may have slight deviations, tenths of a percent change during the auction. Pegging to the dollar is carried out by different principles.
Crypto dollars are issued by private companies that take them out of circulation to change their value. Companies are forced to regularly conduct external audits to prove that they do not generate asset stability through illegal means. Like a regular crypto, the value of a stable coin depends on supply and demand.
How to choose a crypto dollar for investment?
When choosing an asset for investment, you should give preference to popular coins that are trusted by investors from all over the world. Top 5 stablecoins worth investing in include:
- Tether is one of the most sought-after cryptocurrencies, used for trading and placement at interest, quickly converted into US dollars. The binding of the coin to the dollar is secured by securities, bills, deposits.
- USD Coin is the second most popular asset backed by the US dollar. Blockchain is used for the operations of this coin. Ethereum, Solana and several other popular cryptocurrencies.
- TerraUSD is a decentralized coin, blockchain is used to create it Terra. The exchange rate is pegged to the US dollar; the coin is actively used in DeFi projects.
- BUSD is a coin backed by the US dollar, has low volatility, is effective for investments in the long and short term. The coin is popular with traders and investors looking to preserve and hold assets.
- DAI is another popular dollar-pegged coin. Its rate fluctuates slightly, but remains within one dollar. Despite low fluctuations, this asset is considered one of the best for investment.
Benefits and risks of investing in crypto dollars
Crypto dollars have advantages and disadvantages that you should learn about before investing real money in these assets. A few reasons to invest in stable coins:
- Stable rate. The coin is always equivalent to the underlying asset, and the possible deviation from the rate is negligible.
- Speed and ease of transactions. Operations with crypto dollars take a minimum of time from users, they are technically simple and understandable even for beginners.
- Lack of government influence. Crypto dollars are not regulated by government agencies and central banks.
- Risk insurance. Stable coins are actively used to diversify a trader’s risks.
- Low volatility. A low and stable exchange rate guarantees the absence of sharp jumps, like Bitcoin and other popular coins.
The disadvantages of crypto dollars include:
- Centralized management. The company issuing stable coins is responsible for their circulation. The administration of the company by its actions can influence the project, which is not always good for the holders of the asset.
- Inflation. Crypto dollars are backed by fiat currency, so they are also subject to inflation, unlike conventional cryptocurrencies.
- Checks and audits. This is a disadvantage for the company issuing the coin, not for the holders. Companies are required to regularly check and prove the safety of assets so that coin holders are confident in their security.
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