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What is a Stablecoin in Cryptocurrency Trading

The primary concept of crypto trading is the buying and selling of coins to make a profit from the difference in price or value. This is possible because the values of cryptocurrencies are not constant; different factors, like supply and demand, affect their values. So, traders can buy coins and hold on to them till they increase in price, then they sell them to make a profit. 

However, do you know that some coins do not have price fluctuations? They have the same value every day. These coins are called stablecoins, so if you are a crypto trader or aspiring to become one, you should learn about these coins in this detailed guide. 

What is a Stablecoin?

A stablecoin is a cryptocurrency with a pegged value to another currency or asset, such as fiat currency or gold. So, a stablecoin’s value is pegged to another currency’s value, and this currency will be well-regulated to ensure that the stablecoin’s value will also remain the same.

Stablecoins were created to enable a stable and reliable environment for cryptocurrency adoption and to nullify the speculative nature of digital assets.

The value of a stablecoin can not fluctuate independently, so it offers the flexibility of a digital currency and the price stability of a fiat currency. With stablecoins, people can enjoy the good sides of both worlds.

What are the Different Types of Stablecoins?

What is a Stablecoin

Fiat or Commodity-backed Stablecoins

These are stablecoins pegged to fiat currencies such as US Dollars; they have a reserve of fiat currency as collateral to maintain the stablecoin’s value. Other forms of collateral include silver or gold or commodities like crude oil. 

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Cryptocurrency Backed Stablecoins

There are stablecoins whose value is pegged to other cryptocurrencies; there will also be a cryptocurrency reserve as collateral to maintain the stablecoin’s value. 

Algorithm Backed Stablecoins 

The third category of stablecoins are those whose value is pegged to an algorithm or smart contract, which automatically manipulates the circulating supply based on market conditions to maintain the value of the stablecoins. So when the value of the stablecoin drops in price, the smart contract will automatically reduce the supply and increase scarcity, so the value goes back up. 

See also: 7 BEST CRYPTO APPS FOR BEGINNERS

What can you do With a Stablecoin?

Now that you know what a stablecoin is, the next thing on your mind would be how you can benefit from it, so what can you do with these stablecoins? Read on to find out. 

What is a Stablecoin

Protect Your Trades 

The value of cryptocurrencies like Bitcoin and Ethereum constantly fluctuates based on market conditions; sometimes, the price may change so many times daily. However, a cryptocurrency whose value is pegged to a more stable currency like the USD will allow you to buy and sell crypto with ease and peace of mind knowing that the value of your asses won’t crash or rise unpredictably. 

Even when trading with other cryptocurrencies, you can always convert them to stablecoins when the market is not favourable and convert them back to any crypto of your choice when the market is favourable. This is especially beneficial for new traders; they won’t have to deal with high risks when trading as beginners. 

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Save Assets 

The best way to save cryptocurrencies or even fiat currencies is to convert them to stablecoins and keep them; their value will remain the same until whenever you need them. So, if your local currency is volatile and tends to depreciate quickly, you can save them as stablecoins until you need them. Likewise, you can save any cryptocurrency as stablecoins. 

Make Cheap Transactions

Another fantastic benefit of stablecoin is that it will enable you to transfer money to anyone anywhere; you can make international transactions in a few seconds with low transaction fees and a fast processing rate. People make transfers of millions of dollars with USDC, there won’t be any third-party interference, and the transfer fees will be much less than fiat currency transactions. 

Also, you can carry money from one country to another in stablecoins; you don’t need a bank account for this, and the value will remain the same.

What are the Most Popular Stablecoins?

What is a Stablecoin

There are more than 200 stablecoins in the crypto market today; some of the most popular ones include: 

  • Tether (USDT).
  • USD Coin (USDC).
  • Dai (DAI).
  • Binance Dollar (BUSD).
  • Gemini Dollar (GUSD).
  • Pax Dollar (USDP).
  • PayPal USD (PYUSD).
  • BitUSD.
  • Liquity USD (LUSD).
  • Frax (FRAX).
  • TrueUSD (TUSD).
  • Pax Gold (PAXG).
  • Celo Dollar (CUSD).
  • Reserve Rights (RSV).
  • USDD (USDD).

How to Buy Stablecoins

Buying a stablecoin is very easy no matter where you are in the world; first, you must decide on the stablecoin to purchase and check for the currency, asset or commodity it is pegged to. Then, choose a reliable cryptocurrency exchange such as binance, Gemini, Kucoin, Coinbase, etc. Create an account and follow their instructions to buy the stablecoin of your choice.

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Keep in mind that not all exchanges may offer the same stablecoins and some of them may not be available to some countries, so you must find an exchange that offers the coin you want to buy and is available in your country. It will also help if you check the reviews of the exchange platform to determine their reliability. 

See also: Forex vs Crypto, Which is Best for Beginners

One of the things that make crypto trading less appealing to a large swath of investors is the price volatility; the unpredictable price swings are discouraging to many people.

However, with stablecoins, this problem is no longer as significant as it used to be; no matter what happens in the crypto market, their value remains constant. This makes them very appealing and valuable in the crypto market, and now that you know about them, you can take advantage of the opportunity as well to get the best crypto trading experience.

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