Stablecoins as a bridge to crypto investing
If you would like to get involved with crypto but you are scared of market’s volatility, the easiest way to start is to invest into stablecoins. That is also the main reason why we have them — to reduce market’s price volatility.
They still bring many advantages — you can stake them and earn a yield much higher than any centralised bank would ever offer you. Something that comes extremely useful especially now, in the times of high inflation “eating” our money out of our pockets. You can also borrow and lend them, all via decentralised finance.
Stable-coins, as the name itself says, do not usually exceed a very low range of price movements. That is because their value is pegged to different assets.
These are the most common ones.
Fiat-collateralized
As the name suggests, fiat-collateralized stablecoins are backed by different fiat currencies, such as USD. The issuer of the stablecoin must have dollar reserves that are worth the same amount as the collateral.
Crypto-collateralized
The principle of crypto-collateralized stablecoins is pretty much the same as fiat-collateralized. Except that instead of being backed by fiat money, they are backed by cryptocurrency assets.
They are usually over-collateralized to protect against price swings.
Commodity-backed
Physical assets as gold, real estate property. Makes it easier to invest in these assets than in real life.
Non-collateralized (algorithmic)
Using algorithms to keep them stable instead of being backed by different assets.
Okay. So we have different types of stablecoins, but, if there are so many stablecoins to choose from, how do we pick the right ones?
Generally, I would recommend investing into ones with the highest market cap. Only with one exception would be USDT. I do not recommend USD Tether as it is backed by companies debt and also involved with a lot of controversies and investigations. But that is just my personal opinion.
My winner in this case would be UST — decentralised algorithmic stablecoin with a pretty impressive mechanism behind it that we can talk about more in the future, or DAI as an option of crypto-collateralized stablecoin.
Central Digital Bank Currency (CBDC)
Simply explained, they are digital versions of regular currencies and we cannot end this article without mentioning CBDCs at once. From my point of view it’s a very quick ‘mention-and-move-on”. I do not agree with the way CBDCs could be used and neither with the fact that they are fully regulated by the government and also centralised.
But at the end of the day, remember that you invest your own money and it’s completely up to you to choose different assets, depending on your best knowledge and research.
This article contains my opinions and views and it’s created for information and educational purposes only. It’s important to do your own research before investing into any assets. I am not a financial advisor.
