Contents of this article:
n the cryptocurrency sphere, there are coins whose rate is pegged to physical assets. Such a digital currency is called stablecoins, sometimes it is called crypto dollars. We will tell you what it is, what advantages and disadvantages stablecoins have, and what assets are worth investing in right now.
What is a stablecoin, its types
A stablecoin is a cryptocurrency that is pegged to a fiat currency, usually the US dollar. The value of such a coin is stable and fixed. Stablecoins are considered one of the most reliable and convenient units of settlement, and investors often use them to manage risk and protect their portfolio from high volatility.
In the cryptocurrency market, such coins play the role of a buffer. Using crypto dollars, large investors can enter the cryptocurrency market, transferring large amounts within the blockchain system for trading and investment. Experts believe that stablecoins will become even more popular and in demand in the future.
Types of stablecoins:
backed by fiat currency (dollar, euro and other);
backed by a commodity, such as gold or real estate;
secured by another cryptocurrency;
algorithmic, without physical support, decentralized.
Advantages and disadvantages of stablecoins
Crypto dollars or stablecoins are called stable cryptocurrencies, in which investors are actively investing money. It has many advantages:
Steady course. Coins are backed by fiat currency, their exchange rate is always equal to the equivalent asset, and possible deviations are insignificant.
Low volatility. Stablecoin rates do not change as dramatically as the cost of Bitcoin, Ethereum , and other decentralized cryptocurrencies .
Lack of government control. Like regular crypto, stablecoins are not regulated by the state and government organizations.
Simple and fast operations. The transfer of stablecoins does not take much time, and the mechanism is simple and understandable even for an inexperienced user.
Investment portfolio insurance. The use of stablecoins helps investors control risks and protect their deposit.
The safety of reserves. All reserves of stablecoins are stored in special depositories, they are reliably protected from scammers.
Crypto dollars are not without flaws. The main ones are:
Storage of reserves on third party servers. Depositories are protected from hacking, but the third parties responsible for their storage may dispose of the reserves, so the user should be especially careful when choosing an issuer.
Lack of anonymity. Often, stablecoin reserves are held in banks that are controlled by regulators. Therefore, owners of centralized stablecoins cannot rely on anonymity.
Exposure to inflation. Like the fiat currency backed by stablecoins, virtual assets are subject to inflation.
Which stablecoins should I invest in?
Today, the most popular crypto dollar is Tether. This coin is called the most reliable in its segment, it has a fairly high capitalization, the total volume of cryptocurrency transactions exceeds several tens of billions of dollars. The advantage of the coin is that it is pegged to the dollar, its exchange rate is stable and stable even during periods of crisis on the crypto market. The currency is liquid, popular among beginners and professional traders, almost all major cryptocurrency exchanges work with it.
Another popular stablecoin is USD Coin. The coin is equivalent to one US dollar. It was launched by the blockchain company Circle in 2018, and since then it has been one of the most stable and used crypto dollars.
The top three stablecoins include TrueUSD. Experts call this coin stable and reliable, as well as completely transparent. The currency was created by TrustToken, its reserves are backed by the dollar at a ratio of 1:1.
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