Stablecoins: Their Role in the Crypto-Market and How to Assess Them
The cryptocurrency market and its ever-increasing uses have been faced with different challenges over time. Most noticeably is the fluctuation in the price of the different cryptocurrencies. This unstableness has obviously caused a scramble for a solution.
What Are Stablecoins?
These are a type of digital assets which has been widely accepted as the answer to the fluctuation in cryptocurrencies. Stablecoins are cryptocurrency assets that have been, in one way or another, pegged to a more stable asset.
In contrast to other cryptocurrencies, stablecoins are not usually affected by the market dynamics, which causes fluctuation in the other crypto assets. Cryptocurrencies are usually affected by market dynamics, which usually cause instabilities in the cryptocurrency price tag and limit the mass-adoption of cryptos.
Interestingly, stablecoins also acts as a medium of exchange for the users and holders. It also acts as a store of value. It is equally important in maintaining a degree of stability in the crypto asset space. Majorly, investors and digital asset enthusiast buy stablecoins to keep their presence in the digital space. This, in effect, will make them own fiat currency value in stablecoin-form.
Major Roles Of Stablecoins In The Digital Assets Market
Although it would seem stablecoins have one major role in the cryptocurrency and digital assets market, which is to ensure stability, there is still a handle role it plays.
Predictable Store Of Value
Stablecoins were designed to offer token holders a stable and predictable store of value. This is more than any mainstream cryptocurrency can offer.
With the basic idea of being tied to stable fiat currencies, you can rest assured of the stored value of your owned Stablecoins.
The Bridge Between Traditional and Digital Financial Market
The basic theory of stablecoins is the tying of the digital currency to the traditional fiat currency. This, in effect, will act as a bridge which will enable institutions to bring off-chain assets into the digital blockchain space. This will bring even better liquidity and stronger confidence in the cryptocurrency market and exchange.
Why You Should Consider Investing In Stablecoin
Stablecoins can provide you with several advantages. Listed below are overviews of three key services they can provide you with:
- Protecting Your Money
Investing in countries with hyperinflation risk, where there is a price increase of over 50% per month, it would be in your own best interest to go for stablecoins to protect the value of your investment.
Stablecoins can insulate you from the drop in the country’s monetary value. They will ensure you have a secure and reliable medium of exchange even during a failed monetary policy period.
- Affordability of Remittance Fees
For those that send money, stablecoins are one of the best option available for remittance of fee. With its peer-to-peer mechanism, stablecoins are used as a medium for remittance.
With their low fees to sustainable levels, you can be sure of getting your funds across to whatever part of the world you need your funds to reach.
- Merchant Payment Enablement
With the movement of financial institutions and the increased trust through the forbearing stablecoins provide, confidence, security, and seamless transferability is assured.
The stability they bring has increased the amount of investment hence, strong partnership with payment processors. Other key retailers and transactional supply chain members are not left out.
Important Things To Look Out For When Investing In Stablecoin
Trusted And Qualified Funds Holder
One of the major issues that arose in 2018 was the continuous increase of fraudulent intended individuals coming into the crypto market with fraudulent intents.
Before you invest in any stablecoin, you should do yourself a great service by investigating them deeply. You should be sure that the funds held are controlled by a regulated trust company. Of course, this should also be overseen by the financial authorities.
Fully Backed Reserved Assets
Interestingly, some of the new stablecoin establishments hold your asset in fractional backed reserved assets position. This enables them the opportunity to trade with your assets and get profits on your asset.
However, this also exposes you to the risk of failure of the investment. This may lead to the issuer of the stablecoin inability to pay you. Otherwise, when investing in any stablecoin, you should do yourself a big favour by considering the fine prints and ensuring that your investment is legally bound. This should be fully backed on a full ratio basis.
Fully Insured
The main advantage of stablecoins is insurance. Which guarantees the issuer gives to you? Such topics are strictly connected with the reliability of the issuer and play a significant role in assessing whether it deserves your trust or not.
To Wrap It Up
The use of cryptocurrencies and the advantages are ever increasing. It is also important for the regulation and the proper checks and balances to be introduced to emerging solutions like stablecoins.
It is crucial that you understand the uses and advantages the stablecoins provide you when it comes to stability and non-volatility. You should also be very cautious about which stablecoin you settle for — not all stablecoins are created equal.
This content is the part of the “Stablecoins. Money in the right direction” campaign. Powered by CorionX!
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