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What is a Stablecoin?

If you’re reading this, I’m sure you’ve heard of bitcoin, which is the most well-known cryptocurrency to date.

Although it is the most well-known, this does not indicate that it will be your safest investment.

*Price subject to changes

Bitcoin’s price via Coindesk has hit a low of $36,000 as of 2022, after hitting all-time highs of $70,000 during 2021. As you can see, the price of bitcoin is very volatile, which is why if you want to get more people to purchase digital assets, you need a more stable asset.

This is where stablecoins enter the chat.

Simply put, a stablecoin is a non-volatile cryptocurrency- Meaning the price does not change, and its value is tied to an outside asset like USD/gold so that it remains stable.

Stablescoins offer cryptocurrencies’ convenience, privacy, and security while offering the stability and trust of fiat money (Money that the government announces as the legal tender but has no actual value) like USD.

A stablecoin is pegged 1:1 with fiat currency, often the US dollar or Euro.

Some stablecoins are pegged to precious metals and gold.

Stablecoins allow you to trade between different cryptocurrencies such as bitcoin and ethereum.

Stablecoins allow for:

  • No Fees
  • No wait time
  • Risk-Free Investments

They are also:

  • Transparent
  • Secure
  • Immutable
  • Decentralized

Stablecoins take the risk out of investing in volatile, fluctuating assets, as well as the ability to convert quickly from an asset like bitcoin to stablecoin before you endure significant losses.

How do they work?

  • Collateralization- each coin is backed by something typically USD or another countries native currency
  • Smart contract- algorithmically pegged stable coin, the algorithm issues more coins when price increases and buys them off the market when the price falls.

Where to purchase?

Individuals can purchase stable coins on centralized exchanges like Coinbase and Gemini or on decentralized platforms like Uniswap.

Risks of stable coins?

Lack of insurance- Unlike money in a bank, stable coins are not backed by FDIC insurance if funds are lost or stolen, but new developments such as CBDC’s and USDF to adjust with the times.

Collateralization issue- the value of the coin is determined by the people. Stablecoins can be at risk of being unpegged to the US dollar, creating volatility and the chance of being equivalent to $1.

Popular Stablecoins:

Here is a list of some of the most popular stable coins on the market today.

​​https://cryptoslate.com/cryptos/stablecoin/

The purpose of stablecoins is for them to function as a day-to-day currency.

Also, international payments will become prevalent because now individuals from different countries will no longer have to convert their fiat USD to Yuan and endure significant fees.

In addition, crypto-backed cards and USDC payments will become prevalent on a day-to-day basis.

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Kristian Lamarre

Kristian Lamarre

Co-founder @Sencha | Defi Enthusiast | Podcast Lover | Photographer | Adventurer