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How do stablecoins work?

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You may have come across our most-read article about what are stablecoins, but let’s take the opportunity to revisit the topic! As more people are joining the crypto realm, more technology and uses for stablecoins are surfacing and it’s always good to update a deep dive. Let’s get to it!

A Quick Revisit

Cryptocurrencies have been around for over a decade boasting strong benefits and some volatility; therefore, created was a stable trading solution. That’s where stablecoins take the stage. Unlike traditional cryptocurrencies that are known for their value fluctuations, a stablecoin maintains a stable value. This is because they are pegged to a tangible asset. There are different assets that are being used: gold, the US dollar, diamonds, oil, or any other hedge-able asset. Since cryptocurrencies can’t guarantee short-term stability, many investors and institutions look to stablecoins as a more risk-averse solution to join a crypto network.

Stablecoins Now

Although the nature of stablecoins hasn’t changed, with time they’ve become more popular for investors. Stablecoins are a great way for crypto users to exit and re-enter the crypto market without the need to cash out of an exchange. This is important because of the volatile value fluctuations in the crypto market which can be too risky for companies or people who invest at higher stakes. Stablecoins are great because they allow investors to keep their funds in a crypto exchange without risking the value of their investments. If the crypto market begins to plummet, instead of paying fees and wasting time to cash out, companies or people can simply move their funds to a stablecoin keeping them safe from market fluctuations. This also means when the market begins to perform better, moving funds back into crypto is easy. It really is a great tool! 

How people are using stablecoins:

Stablecoins are becoming more popular for that reason, and unsurprisingly we see this more with crypto high rollers. It makes transactions safer and faster without third-party involvement. Some popular stablecoins are USDC, USDT, DAI, and UST. Using USDC as an example, in 2019 USDC investments began to gain traction and in 2021; it peaked and has been popular ever since – and it’s no surprise! 

Investing in cryptocurrencies can be a little daunting, especially when value fluctuation is inevitable. Consider stablecoins a crypto safety net! 

  1. They make exiting and re-entering the crypto market easy
  2. It’s great for tax-efficient and swift blockchain transactions without cashing out
  3. If there are periods where you can’t dedicate time monitoring your crypto, it’s a great place to keep your funds, worry-free
  4. You can keep funds in a crypto exchange without the value budging more than fractions while some have the added benefit of an average annual interest rate of 3% – 20%
  5. More and more people are getting paid directly in full or partially in stablecoins as people want a guaranteed salary value while still having access to a crypto exchange. 

Keep Learning About Stablecoins

There are more and more stablecoins surfacing and it’s never too late to learn about them and see how people use them. As blockchain networks are updating and cleaning up; exchanges are broader and more user-friendly; and people want to keep their money in decentralized exchanges without cashing out – it may be in your best interest to look into stablecoins

As always, take some time to study cryptocurrencies, and don’t let stablecoins pass you by! Learn more about stablecoins and crypto by visiting our website. And don’t forget to follow us on Instagram and Twitter for more on all things crypto!

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