Do Stablecoins Deserve Your Attention?
Binance, a prominent leading crypto trading platform, created a new unified stablecoin market, which it launched toward the end of 2018. It was then that the USDT Market (USDT) was renamed to USDⓈ. One of the aims behind creating this combined Stablecoin Market was to support more trading pairs than before, while also giving people the ability to use various stablecoins as base pairs. Given that stablecoins are making quick inroads in the crypto world, do they warrant your attention?
What are Stablecoins?
A stablecoin, in simple terms, refers to a crypto-asset that has a fixed value. The value of centralized stablecoins is typically pegged to fiat currencies such as U.S. dollars, pound sterling, or euros, although the value might also be pegged to precious metals such as gold. When it comes to decentralized stablecoins, they could be backed by cryptocurrencies, and they might even be tethered or algorithmic.
Some examples of stablecoins pegged to fiat currencies include TrueUSD (TUSD), USD Tether (USDT), Paxos Standard (PAX), and Gemini Dollar (GUSD).
What Benefits Do Stablecoins Offer?
Gav Smythe, founder of iCompareFX, opines that “In the cryptocurrency world that is rife with volatility, stablecoins provide a sense of stability.” He feels that, “If you think the market is taking a turn for the worse, you may invest the money you have in the form of cryptocurrencies into a stablecoin.” Then, he adds, you simply wait for the downward trend to reverse.
Stablecoins come in handy with crypto exchange platforms that do not accept payments or process payouts via fiat currencies. For instance, the exchange platform you work with might let you sell your cryptocurrencies only for other cryptocurrencies. If you wish to convert your investment profits into a non-cryptocurrency to steer clear of volatility, you may use stablecoins to good effect.
If you use a stablecoin as your base currency, devaluation does not have to be a concern. It is mainly for this reason that an increasing number of people are using stablecoins with cryptocurrency exchanges. Other than the compatibility factor, you may also look forward to quicker turnaround times. After all, since this realm remains rather volatile, it does not take long for profits to disappear simply because trades are not processed in time.
What About Drawbacks?
Companies that issue centralized stablecoins assure customers that real-world assets – fiat currencies or precious metals – are used to back their digital assets. For instance, according to Tether, it holds $1 for every USDT out there. This aspect is crucial because there is no telling when you might need to draw on your stablecoin investment.
In addition, the stability of stablecoins may depend on external factors. With a stablecoin that is pegged to a fiat currency, any fluctuation in the value of the fiat currency would also have a similar effect on the value of the stablecoin. Stablecoins that rely on cryptocurrencies to serve as collateral might be even more volatile. Some even depend on complicated bond schemes for future growth and liquidity.
You might consider investing in stablecoins if you wish to add some kind of stability to your digital assets. They might also be useful if you carry out cryptocurrency trades frequently, where time is often of the essence. However, you need to start by finding out which stablecoins might work best for you.