Is Stablecoin Actually Stable?
In simple terms, stablecoin is a digital cryptocurrency that was designed to have solidity instead of volatility like traditional cryptocurrencies, such as bitcoin or dogecoin. Stablecoin maintains its value by being tied to another real-world currency like the US Dollar or gold. Stablecoins now play an important role in the crypto market as more people are looking for more security behind their investments.
The leading stablecoins are used for trading on crypto exchange platforms, and the most prominent ones are Tether, USD coin (USDC), and Binance USD. Here is a breakdown of these top platforms:
● Tether is the world’s biggest stablecoin with around $75 billion in circulation and is backed by all of the following currencies: US dollar, Gold, European Union currency, Mexican Peso, and the Chinese Yuan. Every Tether coin should be worth exactly one unit of whichever fiat currency it is under. For example, one USD should be one US Tether coin. Though this fluctuates a bit, nothing is ever drastic. Using Tether coins allows you to bypass both bank fees and international remittances by trading crypto without converting into dollars and losing a large percentage of monetary gain.
● USD coin is considered to be one of the safest stablecoins, as it holds the value of 1 dollar to 1 coin. Although it does not carry as much popularity as the Tether coin, it is considered more trustworthy. USD coin is very easy for people to use as individuals or as a business wanting to incorporate the digital dollar. It is simple to send, receive and lend without the traditional bank fees. It also creates a good passive income stream as you are able to earn up to 12% interest with it and maintain both transparency and trust.
● Binance USD is a USD-denominated stablecoin approved by the New York State Department of Financial Services and serves as a fast way to fund your trades. It is also acceptable as a medium of exchange, store of value, and a method of payment throughout the crypto ecosystem. Binance USD is only used by US residents and Citizens. This stablecoin does not charge a fee for redemption or purchase, allowing transfers to happen globally, fast, and at a low cost.
How Are Stablecoins Used For?
Most beginners in the crypto world use stablecoins to mitigate or lessen their trading fees. Advanced crypto traders use stablecoins for more purposes like staking and lending.
Staking is leasing your crypto to the blockchain, and lending is leasing your crypto to a borrower. Both allow you to earn interest which is typically paid out in the currency of crypto you paid. When you trade stablecoins, many of the currencies don’t charge for exchanging US dollars for stablecoin. Since Coinbase doesn’t charge any fees, using stablecoin as a middleman between USD and Bitcoin allows you to trade in the least volatile way.
Stablecoins can be transferred across international borders. For example, Sol Digital (a stablecoin linked to Peru’s national currency) can be exchanged between people in different countries without fees from a third party for cross-border money transfers. Traditional physical monetary systems like PayPal and TansferWise add on a significant additional fee, starting at 5%.
Stablecoin can help relieve people in suffering countries where their currency is not steady. If there is rapid inflation in your country, you can have your stablecoin of choice tied to another more secure currency that allows you to send out or receive money that carries more value. Stablecoin serves as its name states… as a stablecoin. As a way to transition currencies between digital and physical, as a way to maintain consistency and promise, and as a way to cut through additional fees incurred through trade and transfers. Stablecoin is a great way to get started and involved in the crypto world without the stress and mayhem involved in crypto. It is a way to get involved that is not volatile and not tethered to any real-world currency.