As you know, today the cryptocurrency is quite unstable. All this is due to rising inflation and an unstable economy in the world. Stablecoins, on the other hand, can boast of their stability. They are considered cryptocurrencies with a stable or fixed exchange rate. The popularity of stablecoins has been growing rapidly in recent years. The market capitalization of Tether (one of the most famous stablecoins) by April 2022 exceeded the $82 billion mark. Maybe it would be relevant now to invest in stablecoins? Let’s talk about it in more detail.
Advantages and disadvantages:
Stablecoins are a universal unit of account, which is convenient for the following processes: currency storage, investment portfolio protection from volatility, and trading. It is also more convenient to transfer cryptocurrency from one exchange to another using a stablecoin. You can also place cryptocurrencies on DeFi lending platforms. There are other pleasant moments, which we will discuss below.
To better understand the pros and cons, remember that there are centralized, algorithmic, as well as fiat stablecoins.
The first type is stablecoins, which are controlled by central funds. Their operators are organizations registered in a major jurisdiction. In this case, the issuer is responsible for the issue. He decides what will happen to the turnover of the coin: will it decrease or increase. On the one hand, it is stable and secured by low volatility. On the other hand, the uncertainty of how the operator will use the reserve may lead to problems with the control of these reserves.
As for algorithmic stablecoins, the stability of some of the stablecoins is provided by cryptocurrencies rather than traditional instruments. Sustainability is possible due to redundancy when the amount of collateral exceeds the issuance of the token. If the margin price is less, the user’s position is forced to be liquidated.
Fiat reserves. In the crypto industry, the most common stablecoins are those that are pegged to the price of real money. Let’s just talk about fiat stablecoins. Tether (USDT) is the most famous example of such a coin. It is pegged to the dollar: 1 USDT = $1. Deviations are minimal here. In the case of pegging stablecoins to fiat reserves, there is always some legal entity that must keep enough reliable dollar reserves in the bank. This is done in order to exchange all issued coins for real crispy money in which case. There are also stable cryptocurrencies based on the euro – Stasis Euro (EURS), for example. They are not yet as common and popular as dollars, but they are also developing. There is also based on the Singapore dollar – XSGD.
There are also stablecoins that are pegged to the price of gold. These include, for example, PAX Gold (PAXG) and Tether Gold (XAUT). ETFs are stablecoin issuers that charge no management fees. It is also worth noting that in this case, settlements in cryptocurrencies are faster and cheaper.
It is worth noting the possibility of lending and staking, thanks to which, with the help of a stablecoin, traders and investors can receive certain percentages. When you stake coins, you can also get rewarded.
Another plus is that you do not need a bank account to store stablecoins. Low commission and fast transaction processing is a pleasant moment in working with cryptocurrency. It is also possible to transfer money around the world, even where the US dollar is not available or where the local currency is unstable.
What do the experts say?
At the end of 2021, the US Treasury said: “The opacity of stablecoin reserves is a threat to investors.” The Fed believes that stablecoins are a risk. All because of possible problems with their conversion to fiat. Tether CTO Paolo Ardoino says: “Algorithmic stablecoins are dangerous for the cryptocurrency market, as they can cause a “cascade effect”. The FATF, after their research, believes that stablecoins are subject to the same risks as other digital currencies. They pay special attention to stablecoins of wide distribution, as well as global stablecoins. Because of their high risk, the FATF calls for a centralized approach and control over transactions with them. It also recommends that jurisdictions apply the regulatory approach they have reflected in their updated Recommendations. After the publication of the FATF Report, it was assumed that the package of updates that relate to the settlement of cryptocurrencies, stablecoins, will be replenished.
In the meantime, the stability of such cryptocurrencies allows users to store money without unnecessary risks. It is unlikely that now it will be possible to make money on this type of investment, but you can store your money in electronic form. Often, traders exchange fiat for a stablecoin in order to later buy a cryptocurrency, such as bitcoin or ether, with it. Also, the reason for this option of storing money can be called the fact that people just want to protect themselves from the classic situations of theft. Storage in a wallet and in a bank does not seem so reliable and modern now. In addition, it is convenient to save money for later, and withdraw from it when the economy is in a better position. In principle, it is right to have money for unforeseen expenses. Or have stocks of electronic money as a financial cushion for the future. You can learn more about cryptocurrency news at ICOholder.
Stablecons are that part of the economy of the cryptocurrency world, without which a complete safe exchange of funds between investors is impossible. Buying stablecoins can help investors and other users stay on the market during a volatile crisis. In any case, if you decide to use this investment option, we advise you to competently study the topic of interest to you and then proceed to action. It is not worth investing in something if you are not familiar with it enough. Good luck!
An author of Namaste UI, published several articles focused on blogging, business, web design & development, e-commerce, finance, health, lifestyle, marketing, social media, SEO, travel.
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