Stablecoins are a type of digital currency that is intended to be stable in practice. The biggest cons of Cryptocurrencies is that it is not stable and its price fluctuates after every second. This can cause a huge loss to new investors.
However, this can become an asset for experienced investors who know how to turn this feature into a profit. Those individuals who are not aware of the market volatility and want to access Cryptocurrencies’ decentralized benefits can consider Stablecoins.
The value of stablecoins is protected from the market’s volatility, but this affects the standard of other Cryptocurrencies such as Bitcoin. For example, if you buy 1 Stablecoin for $1, and if you are willing to sell this later on, then you can sell it at the same price ($1). This is the advantage of investing in stablecoins as the worth of your purchase is going to stay stable.
Also, there is no risk of loss regarding this asset, unlike digital currencies, where the value keeps on fluctuating.
What Are Stablecoins?
In a more simple term, Stablecoins are Cryptocurrencies that was designed to reduce the fluctuation of other internet currencies. For beginners and those who are afraid of the Crypto’s market volatility can invest in this currency without a second thought.
The features of stablecoins are similar to other Cryptocurrencies, and this includes fast transaction speed, transparency, faster transactions, low fees, security, etc., according to the various Bitcoin platforms.
Different Types Of Stablecoins
Now, you are aware of stablecoins and their main objectives. So, let’s proceed to know the different types of stablecoins in 2021.
1. Algorithmic Stablecoins
The circulation of Algorithmic Stablecoins is based on the quantity theory of money, and ‘Basis’ is an example of this currency.
Moreover, it is not attached to an underlying asset, and its circulating supply is managed in acknowledgment of its performance.
2. Collateral Stablecoins
Collateral Stablecoins operates in a similar way as fiat-backed virtual currencies. Most investors use this Stablecoin as a hedging device to counterbalance more unstable currencies in their duties.
These Stablecoins are tied in value to another digital currency instead of being tied to EUR, GBP, or USD. However, sometimes this can be a risky investment because it causes price fluctuations in many Cryptos.
3. Fiat-Backed Stablecoins
This stablecoin is based on the worth of backing currency, which is held by a third-party entity. These are tied in value to underlying traditional currencies.
One of the most popular fiat-backed stablecoins is Tether, and this Cryptocurrency was launched in the year 2014.
Benefits Of Stablecoins in 2021
Investing in stablecoins consist of various benefits, and this includes the following:
i). Stablecoins are highly scalable, and there are no stable reserves. Also, this currency is less susceptible to attacks as compared to standard Cryptocurrencies such as Bitcoin, Litecoin, Ether, etc.
ii). Traditional payment transactions via Debit cards, Credit cards are high than Stablecoins. So, this can be your prime choice to choose Stablecoins in 2021. It can provide value to both consumers and companies.
iii). Stablecoins are programmable, and this is one of the best benefits of using this asset. These are basically made up of code, and hence the characteristics can be added to them if necessary.
iv). All the transactions of Stablecoins are transparent because it uses a Blockchain network to verify transactions. Thus, Stablecoins offers high transparency rates into the process, which is one of its main advantages.
v). You can also make borderless payments in just a few seconds because this Cryptocurrency gives you the ability to do so.
vi). The speed of the stablecoins is faster than traditional currencies. For example, by utilizing stablecoins, Escrow is simplified by smart contracts.
The Bottom Line
Stablecoins are much more durable than traditional digital currencies, but it does not mean that it is entirely free from fluctuations (almost no currency is). Hence, this is all that you should understand about Stablecoins and its rich features.