The main difference between Stablecoin and cryptocurrency is volatility; While the value of a cryptocurrency is more like a roller coaster, the value of a stable coin can be equal to a bicycle on a plain; it will always maintain its stability.
What is a Stablecoin
Basically, a stabelcoin is a type of cryptocurrency that seeks to keep its value stable against another asset such as the U.S. dollar or gold. Various methods are used to do this, such as backing each currency with an asset reserve or using automatic stabilization mechanisms.
And what are they for?
Imagine, for example, that you are on a trip around the world and you want to make sure your money is always worth the same, in addition to not having to deal with currency exchange and all those processes we hate so much. That’s exactly what stabelcoins are for. Offering a stable value, stabelcoins can be used for payments, credit and other purposes similar to traditional money . However, because the technology is still under development, there are still regulatory and technical issues that need to be resolved.
Now yes, after this brief introduction we are going to explain in detail what stabelcoins are, how they work and their potential impact on the global economy.
Where do stabelcoins come from?
The truth is that the first concept of stabelcoins is not very clear, as there are several events that happened almost simultaneously.
Nevertheless, Bit Gold , a cryptocurrency that appeared in 2011 and was officially backed by gold, is generally considered to be the first example of the concept. Although the idea of a stable coin was never developed, it became a recurring theme in cryptocurrency communities.
In any case, it wasn’t until 2014, with the launch of Tether, that there was a stablecoin project backed by U.S. dollars, presented the first working one that made it one of the most popular and used stablecoin projects to date.
Since then, several stablcoin projects have emerged, each with their own methodology; some support their value with assets such as gold or the dollar, while others use automatic stabilization mechanisms such as creating and destroying the currency based on market demand.
One could say that the origins of stablcoins go back to the early days of cryptocurrencies, and the projects evolved and developed using different methodologies to achieve stability in their value.
How many stabelcoins there are and what types exist
As I mentioned above, the purpose of stabelcoins is to maintain a stable value against another asset, such as the U.S. dollar, gold, or oil.
There are several ways to make Stablecoin maintain its stable value. One of them uses an asset as a backup. That is, the value of a stabelcoin is directly related to the value of the asset that backs it up (as we said before, it can be different assets: gold, oil…). For example, if a stablecoin is backed by the U.S. dollar, its value will remain close to that of the dollar. If the value of the dollar increases, the value of the stabelcoin will also increase, and if the value of the dollar decreases, the value of the stabelcoin will also decrease.
Some of the most popular stablcoins are Tether (USDT), USDC, DAI, and BUSD. Tether is the largest steblycoin in terms of market capitalization and is widely used in cryptocurrency trading, it is like the king of steblycoin, while USDC, DAI, and BUSD, though also widely used and supported by various organizations, are not.
However, as we noted earlier, there are more types of stablecoins. While asset-backed ones are the most popular, there are other types of stablenecoins that are gaining popularity over time, and those are algorithmic stablenecoins .
Yes, you read that correctly, these coins, unlike the previous case, are not maintained stable through any asset backing, but are maintained through the use of artificial intelligence that plays with the supply and demand of the currency .
How does this work? How these algorithms work can vary, but in general, as we’ve said, they use supply and demand mechanisms to adjust the value of stabelcoin. It’s like a street vendor adjusting prices based on demand.
For example, if demand for stabelcoin increases, the algorithm can issue more coins to meet demand, which in turn increases the value of stabelcoin. On the other hand, if demand decreases, the algorithm can withdraw coins from the market to lower the value of the stabelcoin.
Among the best known algorithmic stablcoins is MakerDAO’s DAI, which is a stablcoin backed by Ethereum, and while there are many more, some of them have problems with the stability of their value, leading to what is known as depeg or loss of value.
Two Types of Stablecoins
In short, there are two types of stabelcoins that you should be aware of : asset-backed and algorithmic. The first ones are backed by tangible things like gold or dollars, and their value is directly related to the value of that asset. This makes them very stable and reliable, but be careful! Its value can change if the supporting asset undergoes a sudden change.
Algorithmic stabelcoins, on the other hand, are not backed by anything tangible; instead, they use an automated system to maintain a stable value. This gives them greater flexibility and scalability, but beware, they are considered less stable and reliable.
What’s the Best Stablecoin
Some of the best known stablenecoins include Tether and USDC, both of which are backed by U.S. dollars. On the other hand, we have DAI, a stable coin backed by Ethereum.
However, it is important to note that there is not one stable coin that is clearly the best for all purposes and situations . Each stablecoin has its own characteristics and advantages, and the best option will depend on your needs and preferences. However, here is an article about the most profitable cryptocurrencies , which also talks about stabelcoins.
Among all the stabelcoins, one of the most reliable options today is Tether due to its wide distribution and long history in the market. Let us briefly describe the most important characteristics of this coin:
● 1:1 collateral : Tether is backed by one U.S. dollar deposited in reserves, which means that each unit of Tether is backed by one dollar.
● Widespread acceptance . Tether is widely accepted on various exchanges, making it easy to use as a medium of exchange.
● Long history in the market : Tether is one of the oldest stabelcoins on the market since 2014.
● Transparency . Tether has been the subject of controversy because of concerns about its transparency and verification of its reserves, but in recent years the company has taken steps to increase transparency.
However, it is important to note that Tether’s approval has been questioned and investigations are ongoing at the regulatory level and there has been controversy over the transparency of its approval, so it is important that you do your research now to invest in this stable coin. or any other.
What applications can you use for a stable coin?
Now we are going to look at what different uses we can give these stablecoins.
Trade cryptocurrencies without worrying about volatility, or save money safely. Stablecoins are perfect for this because their value is tied to a stable asset, which means it doesn’t constantly change like cryptocurrencies do.
Buy or sell goods and services safely. You can do this with Stablecoins because you don’t have to worry as much about market fluctuations.
If you want to send money overseas quickly, safely and efficiently or make payments online or in stores, stabelcoins can be the solution because by being linked to a stable asset, your money will be delivered safely and securely without worries.
If you want to experiment with decentralized finance , stabelcoins are used in the context of decentralized finance (DeFi) for lending, investing and trading.
As you can see, Stablecoins are a stable option for exchange, trade, savings, money transfers, payments and, in some cases, investments.
How can I make money with them?
There are several ways to make money with stabelcoins, although in this section I will only focus on lending or lending and leasing as it is the most lucrative way to make money with stabelcoins. Let’s go there.
Through lending and leasing, you can lend your stabelcoins to other people through decentralized (DeFi) or centralized (CeFi) financial platforms. Imagine, it’s kind of like having your own bank.
Also, you don’t need to be a financial expert to understand how it works. Stablecoin lending and leasing works similarly to traditional lending and leasing, but instead of traditional assets such as property or stocks, you use stabelcoins as collateral. It’s like if you were lending money to your friend, but instead of bills, you would use stabelcoins .
In a stabelcoin loan, you deposit your stabelcoins into a smart contract on the DeFi platform, and in return you get a loan in cash or another currency. The smart contract acts as an intermediary between you and the lender, ensuring that you repay the loan along with the associated interest.
When you rent stabelcoins, you deposit your stabelcoins into the smart contract, and in return you receive a refund in cash or another currency. The smart contract acts as an intermediary between you and the lessee, ensuring that he or she will return the stabelcoins at the end of the lease along with the appropriate interest.
Lending and leasing with stabelcoins is an effective and fast way to make money.
A list of the best stabelcoins today
It’s normal to get a little saturated with the number of stabelcoins that exist at first, and when you add to that the fact that each one has its advantages and disadvantages, I won’t even tell you anymore. So it is important for you to know that they are all different, and choosing one or the other will depend not only on its characteristics, but also on your needs as an investor. To make it a little easier for you, I am giving you a list of the most popular, these are the stable coins that I think you should know if you are entering this world.
- Tether (USDT) is one of the oldest and most commonly used stabelcoins on the cryptocurrency market. It is backed by U.S. dollars, and its wide acceptance makes it a popular medium of exchange. Of course, as I told you before, there are concerns about its transparency and reserve checking.
- USDC : It is a stable coin, backed by U.S. dollars, and backed by a consortium of companies led by Circle. It is used as a medium of exchange in the Ethereum network and has improved transparency compared to other Stablecoins.
- DAI : It is a stable coin backed by Ethereum through a secured guarantee system. It is used in the context of decentralized finance (DeFi) to provide credit and trade transactions.
- BUSD : it is a stable coin backed by US dollars and Binance, a widely used cryptocurrency exchange.
However, while they all seem like great options, as I keep repeating, it is important to research and compare the features of each stable coin before making a decision, including support, regulation, transparency and security, as well as being aware of news that may affect the value of these stabelcoins.
Where and How I Can Buy or Sell Stablecoins
There are several platforms where you can buy and sell stabelcoins. Here I’ll talk about some of the best known ones:
- Cryptocurrency exchanges . Major cryptocurrency exchanges such as Binance, Coinbase, Kraken and others offer the ability to buy and sell stablcoins for other cryptocurrencies or for fiat currencies such as the US dollar or euro. Don’t forget to choose a safe exchange. Here is a table of safe and secure exchangers.
- P2P (Peer-to-Peer) : P2P trading platforms like LocalBitcoins or Paxful allow users to directly buy and sell staplecoins from each other with different payment methods.
- Stablecoin Exchange Services : there are several specialized stabelcoin exchange platforms such as Circle or Anchorage that offer the ability to buy and sell stabelcoins for fiat currencies.
- Decentralized Funding (DeFi) . There are Decentralized Funding (DeFi) platforms such as Aave, Compound and others that allow users to lend or borrow stabelcoins using smart contracts and can be used to buy and sell stabelcoins in the market. .
In this case, we also recommend researching and comparing the features of each platform before making a decision, including security, regulation, liquidity and fees.
Stablecoins have become a promising alternative to volatile cryptocurrencies because they offer price stability and predictability . This makes them ideal for commercial transactions and as a way to preserve value. In addition, their backing in stable assets such as the dollar or gold makes them more attractive to traditional investors.
Of course, remember that there are cryptocurrencies that are safer than others when it comes to investing, which in my opinion may be even a better option than stable coins, like buying Ethereum or bitcoins in the long run and keeping them cold. through a safe wallet like ours. From Material Bitcoin you can do this in a few simple steps.