If you are an investor interested in digital assets but aren’t sure which projects to put your money into, then Stablecoins could be something of a savior. Stablecoins are a relatively new concept that aim to solve the many problems that have plagued the cryptocurrency market in recent years. To learn more about Stablecoins and how they could be a great investment for you, keep reading this Stablecoins guide.
In this guide, we’ll be explaining what Stablecoins are, their history in the cryptocurrency ecosystem, the different types of Stablecoins, and the best Stablecoins to buy based on your investment goals and risk tolerance. If you’re ready to begin your Stablecoins journey, then let’s get started.
What is a Stablecoin?
Stablecoins are cryptocurrencies that maintain a predictable value, usually tied to the USD or another fiat currency. They are different from other cryptocurrencies in that they are designed to maintain a fixed exchange rate to their “stable” currency of choice. For example, USDT is a US dollar-backed cryptocurrency that aims to maintain a 1:1 parity with the USD.
These cryptocurrencies differ from fiat currencies in that they are all asset-backed. Unlike fiat, where the issuing authority controls the supply of money, Stablecoins are decentralized and maintained by the community.
Stablecoins: A brief history
The concept of a cryptocurrency that is pegged to a traditional currency dates back to the gold standard days of the early 1900s. However, it was not until the financial crisis that this concept really took off.
In 2012, the U.S. dollar plunged in value against many foreign currencies, sparking a demand for a “stable” currency to protect against financial ruin. This demand created the potential for a new financial product, and before long, many new cryptocurrencies were born, pegged to the U.S. dollar, the Euro, the Yen and other fiat currencies.
How do Stablecoins work?
When purchasing a Stablecoin, you are essentially buying a coin that is backed by a stable asset, like the US dollar. The value of the coin is determined by how much the team behind it promises to return you in the future, plus market demand.
However, the question that arises with this is: How do they decide what the future value of that stable asset will be? This, in a nutshell, is the problem with all fiat-backed cryptocurrencies.
The value of a fiat-backed cryptocurrency is determined by political forces, such as the whim of a government or the next big financial event. The value of cryptocurrencies that are pegged to the dollar are at the whim of the Federal Reserve and its interest rate decisions.
Different types of Stablecoins
Stablecoins are classified based on the use case, legal structure, and project management principles. Here are the main types of Stablecoins:
Asset-Backed Stablecoins: Asset-backed Stablecoins are backed by real assets, like gold, oil, or silver. The value of these cryptocurrencies is supposed to track the value of the underlying assets.
Exchange-Traded Fund Stablecoins: Exchange-Traded Funds (ETFs) are open-ended financial products that track an index, a commodity, or a currency. They are a type of Stablecoin that follows the “ ETF Equals ” theory of Stablecoins.
” of Stablecoins. Debt-Backed Stablecoins: Debt-backed Stablecoins are backed by a corporate or government debt obligation. The debt issuer promises to make good on the debt if the currency value falls too low.
How to Buy Stablecoins
If you want to buy Stablecoins, the first step is to find a brokerage that offers this service. A brokerage that offers Stablecoins is a broker that provides you with a trading platform, along with the appropriate financial tools, to invest in digital assets like cryptocurrencies.
If you’re interested in buying Stablecoins with your fiat currency, the easiest way to do this is through a cryptocurrency exchange like Coinbase. Coinbase offers a wide range of digital assets, including Stablecoins.
If you want to buy Stablecoins with cryptocurrency like Bitcoin (BTC), Ethereum (ETH), or Bitcoin Cash (BCH), your best bet is to find a cryptocurrency exchange that offers Stablecoin trading pairs.
Buying STP and other Stablecoins
There are a few things to keep in mind when you’re trying to buy Stablecoins:
Most exchanges only list a few Stablecoins at a time. This means that you may have to wait days or even weeks to get them added to your exchange. You’re probably not the only one waiting, so don’t stress too much about it.
Most exchanges only support one or two countries for fiat-to-Stablecoin trading. This means that if you want to make a large purchase of Stablecoins, you may have to use an overseas exchange.
Exchanges that list Stablecoins are not required to publish regular updates on the health of the coins they list. This means that while you should Research the coins you’re interested in buying, you should also prepare yourself for the fact that the coins may have issues.
Stablecoins are a new but promising category of cryptocurrencies that aim to solve some of the problems that have plagued the cryptocurrency ecosystem over the past couple of years. If you’re interested in investing in Stablecoins, you should research them thoroughly and make sure they are the right type for your investment goals.
Among the different types of Stablecoins, USDT and BCH are the most promising. Binance, one of the largest cryptocurrency exchanges, recently added support for trading these two Stablecoins. If you’re interested in investing in Stablecoins, you should research them thoroughly and make sure they are the right type for your investment goals.