5 Ways of Using Fiat in Crypto
How to use real-world fiat currencies in the crypto ecosystem
The cryptocurrency space is growing fast, bringing with it many opportunities for investors and traders. The issue that many new investors experience with cryptocurrency is that they have a tough time understanding how to convert their fiat money into cryptocurrency and how they can take advantage of the many opportunities that exist within Web3. There are many individuals and institutions that want to enter the crypto industry, but do not know where to start. So, what are the main ways that one can use fiat money in the crypto space?
1. Using centralized exchange fiat on/off ramps
This is probably the most straightforward way to use fiat in crypto. There are many centralized exchanges that will accept real-world USD in exchange for some cryptocurrency, such as Binance, crypto.com, FTX, or Kucoin. These centralized exchanges will give you an option to connect your bank account or debit card to the exchange, so that you can use the funds in your bank account to buy crypto directly. Doing so requires a small fee, as the exchange company may have to handle some processing fees in order to accept the fiat currency in exchange for crypto.
2. Converting fiat to stablecoins
There are many opportunities in the cryptocurrency space where one cannot use fiat directly. If you go on Binance, for example, you will see that the main trading pair to buy bitcoin (BTC) is not BTC/USD but actually BTC/USDT. USDT is a stablecoin, essentially a cryptocurrency that should always maintain the price of a dollar. A stablecoin is meant to mimic a dollar, but is not actually a real dollar. That is why, when we look at a chart, we see that the price of a stablecoin may fluctuate, usually ranging from $0.99 to $1.01. We have already had some stablecoins fail in the past, such as the infamous UST crash which proved to the world the risks of algorithmic stablecoins. But many more anti-fragile stable tokens exist too, read our Stable Stablecoins article to learn more.
People enjoy using and trading stablecoins, due to the freedom of exchange. Trading fiat USD becomes complicated when transferring from one country to another, and there are many remittance services that charge a lot to help facilitate that process. Thanks to stablecoins, anyone anywhere in the world can have access to something that is very similar to USD. This brings us to our next use case for using fiat in crypto:
3. Borderless payments
We know that sending money across borders can be challenging. Even the SWIFT system, used for large transactions, can be slow and tiresome. Therefore, certain cryptocurrency networks like Ripple (XRP) and Stellar (XLM) facilitate the process of getting money from one place to another. Thanks to these networks, people can easily send money across the world at a fraction of the cost that it would take for large remittance services such as Western Union. Stellar has a bunch of fiat-backed stablecoins, ensuring that money can be exchanged easily and reliably in seconds across the globe. We are building Spacewalk bridge to connect Stellar’s vast array of fiat stable tokens with Pendulum chain and all Substrate parachains.
4. Taking advantage of DeFi lending opportunities
One of the main advantages of cryptocurrency is the new investment tools and strategies that exist within the cryptocurrency space, such as DeFi (Decentralized Finance). Thanks to DeFi, people are able to borrow and lend without needing a middleman such as a bank. The transactions are secure thanks to smart contracts that will automatically execute the lending and the borrowing transactions, ensuring that both lender and borrower are anonymous while still maintaining complete trust for both the lender and the borrower. Right now, the best savings accounts in the USA pay out around 2% APY. Compare that to a DeFi landing platform like TrueFi, where you can earn almost 8% on your USDT. However, it is important to always do your own research on the security of DeFi protocols as well as the counterparty risks involved before engaging in DeFi lending and borrowing.
5. Converting crypto back into fiat
We have already explained how to convert fiat into crypto, but how do we convert crypto back into fiat? Of course, we have the traditional centralized exchanges, but we also have p2p markets and stablecoin-to-fiat exchangers, so that people remain confident that their stablecoins can be converted anytime into fiat currencies. P2P exchanges are great for large sums because they reduce slippage and get two parties to agree on a price beforehand without looking at the actual market value of the asset.
Fiat has many different use cases inside the crypto industry. However, getting fiat into DeFi in the first place can be challenging from a user experience and compliance perspective. This is particularly challenging for institutions and Fintech companies. Enter Pendulum and Amplitude.
Pendulum is building the infrastructure needed for traditional finance to access DeFi. Pendulum’s vision is to build the missing link between fiat and DeFi through a forex-optimized smart contract blockchain. Allowing traditional finance services to seamlessly integrate with DeFi applications such as specialized forex AMMs, lending protocols and yield farming. Pendulum will operate as a key piece of Web3 infrastructure to finally unlock DeFi use cases for fiat currencies. Join our socials to help us further our mission to create an open financial future that overcomes borders and fosters economic inclusion!
Pioneering the internet of fiat. Amplitude is the sister network of Pendulum on Kusama. It will act as a testing ground for Pendulum applications and network parameters and be powered by the AMPE token.
Building the missing link between fiat and DeFi through a fiat-optimized smart contract blockchain based on Polkadot’s Substrate. Allowing traditional finance fiat services to integrate with DeFi applications such as specialized forex AMMs, lending protocols, or yield farming opportunities. Developed by SatoshiPay.