Stablecoins have been making serious headway recently. They are the alternative to volatile digital assets such as Ethereum and Bitcoin, and since they are typically pegged 1:1 with the U.S. dollar, the coins simply follow the dollar’s performance.
Risk-averse crypto enthusiasts simply love this type of coin and use them mainly to make online transactions. Generally speaking, all transaction fees are extremely low, and you can send funds to anyone worldwide. However, that’s not the only application of these digital assets. You can lend money to borrowers on certain platforms and earn profits via interest.
Many wonder whether stablecoins are the future of money, and as things stand, these assets are well on their way to replacing fiat money. Take a peek below if you are interested in discovering more about these coins and how they function.
What Exactly Are Stablecoins?
Stablecoins are a type of cryptocurrency intended to minimize price volatility. They are usually pegged against other assets—real currency—and generally maintain their value relative to them, even during market downturns. Stablecoins provide an efficient way for people to store and transfer funds without exposing themselves to extreme changes in market prices. They also serve as a bridge between traditional markets and the crypto world, allowing for the easy conversion between fiat currencies and digital assets.
Ultimately, stablecoins are becoming increasingly important as more individuals and organizations become involved in the whole world of cryptocurrencies. Stablecoins offer stability, usability, and greater trust in these disruptive financial systems, which makes them a top choice for many entities.
For a solid stablecoin investment, you must visit a reputable exchange, look at the stablecoins list, and pick the right one. It’s worth mentioning that some of the most popular stablecoins include: Tether, USD Coin, Paxos Standard, Origin Dollar, and so on.
Why Are Stablecoins Important?
Stablecoins have the potential to revolutionize the way we think about money and transactions, both online and in the physical world. Creating a bridge between traditional fiat currencies and decentralized digital assets opens up exciting new possibilities for businesses, consumers, investors, developers, and more.
As mentioned previously, stablecoins can be used just like any other digital coin, and its holders can enjoy various benefits, such as making private transactions online and sideline cash. In addition to that, holders can borrow portions of their assets from individuals in need of funds to earn interest rates on almost all top exchanges.
The Future of Fiat Currency
The future of money with stablecoins looks to be incredibly promising. We could see the adoption of stablecoins becoming commonplace in the near future for businesses and individuals alike. Governments may even start looking into issuing their own forms of fiat-backed digital currencies, which will further cement their use in the real world.
If you are interested in starting your own crypto journey, stablecoins might be the perfect option. You will avoid drastic drops in price that volatility brings. However, you can say goodbye to the possibility of huge profits due to a surge in price.
Risks of Stablecoins
Stablecoin issuers are required to regularly disclose their reserves, but questions still arise about whether token holders can actually redeem their coins for the promised backing amount. This is a huge problem that motivates risk-averse investors to steer clear.
Notable examples of this include Tether which has been consistently challenged regarding its claim of being fully backed 1 to 1 by U.S. dollars. In some cases, it may be discovered that the issuer’s reserves are insufficient to meet all outstanding liabilities, and this could cause serious damage to the credibility of a stablecoin if users realize they can’t convert their coins into fiat currency.
Bottom Line
Stablecoins are a great way to get into the world of cryptocurrencies. They offer users a safe way to get familiar with digital assets and enjoy the benefits that come with them. If you want to set up a source of passive income, stablecoins might be just what you need, as you can earn a lot of interest by lending portions of your funds.
If you decide to invest in stablecoins, make sure you do your due diligence and carefully research what the coins are made for and how they can be used.
Jeena Alfredo is a passionate digital marketer at The Business Goals. She is working with other companies to help them manage the relationship with The Business Goals for the publications.
