What are stablecoins and why are they needed?

Stablecoin — what is it? What is a stablecoin for?

Stablecoins, also known as stable coins, are cryptocurrencies designed to provide stability in their value. They achieve this by linking to specific assets or baskets of assets. A distinctive feature of stablecoins is their ability to overcome the significant volatility inherent in most other cryptocurrencies, such as Bitcoin or Ethereum.

The concept of stablecoins is to create a digital asset whose value is fixed or stable, similar to traditional currencies such as the US dollar or euro. This makes stablecoins more reliable and convenient to use in everyday financial transactions.

There are various approaches to creating stablecoins

• Stablecoins pegged to fiat currencies. Some stablecoins are directly linked to fiat currencies such as the US dollar or euro. These stablecoins are usually backed by a fiat currency reserve in a bank account or other financial instruments. When a user buys or exchanges such stablecoins for fiat money, the issuer undertakes to pay or accept the corresponding amount in fiat currency.
• Stablecoins are pegged to other assets. Some stablecoins can be pegged to assets other than fiat currencies. For example, they may be linked to gold, oil, or other commodities. To maintain the stability of the value of such stablecoins, the issuer must have an appropriate reserve of assets.
• Algorithmic stablecoins. Some stablecoins use algorithms and control mechanisms to keep their value stable. These stablecoins can change the amount of issued tokens or change interest rates depending on supply and demand on the market.

Stablecoins are reviewed and audited to ensure that their stability promises are transparent and credible. However, keep in mind that stablecoins can still be subject to some degree of volatility and risk, especially if issuers default on their obligations. Stablecoins can be used to exchange for other cryptocurrencies, store value, or conduct online transactions. They can also be useful tools for trading or for reducing risks when dealing with cryptocurrencies.

Positive aspects of stablecoins

• Guaranteed price stability. This aspect makes stablecoins an ideal choice for a wide range of different financial transactions. Cryptocurrencies can successfully integrate into the foreign exchange market, which was previously dominated only by the state fiat.
• Fast and efficient conversions. Financial transactions in Blockchain are carried out much faster. For conversions with these coins, there is no need to wait for confirmation from a third party. As a result, users avoid paying fees to third parties.
• Transparency and Reliability/ Conversions involving these coins are registered in a global ledger that is verifiable by each participant. This is an advantage over fiat currencies, where information about transactions often remains hidden.
• Risk protection and hedging. Stablecoins can be used in trading as well as investing to mitigate risk. Stablecoins are an effective tool for reducing the overall level of risk by allocating a certain percentage of the portfolio to them.
• Stablecoins play an important role in the dynamic expansion and improvement of the cryptocurrency space, providing stability by taking advantage of blockchain technologies for fast and transparent financial transactions.

Stablecoin limits

• Centralization. Unlike some other cryptocurrencies, stablecoins are primarily created by centralized entities that control the issuance and management of the currency. This is contrary to the concept of decentralization common to most cryptocurrencies.
• The need for a third party audit. To confirm the stability of stablecoins, an audit of their compliance is required. This means relying on the credibility of the auditors and the involvement of additional parties to ensure transparency and reliability of operations.
• Limited opportunities for price growth. Stablecoins do not have a high potential for significant price growth as their price stability limits fluctuations. This may reduce the interest of investors looking for high returns on the cryptocurrency market.

Despite these limitations, stablecoins retain their advantages and remain useful in various financial transactions. They provide stability and reliability, which makes them attractive for certain areas such as payments and risk hedging. It is important to consider both the pros and cons of stablecoins when making decisions about their use.

Why does an investor need stablecoins?

Investors may be interested in stablecoins for several reasons:

• Stability. Stablecoins are price stable because they are pegged to certain assets, such as a fiat currency or a commodity. This makes them attractive to investors who are looking for stable assets that can maintain their value during the volatility of the cryptocurrency market.
• Risk hedging. These coins can be used to hedge risk. Investors can convert their cryptocurrencies into stablecoins when they expect the market to decline in price to keep their portfolio value stable and protect it from losses.
• Liquidity and speed. Digital currencies usually have high liquidity and fast transactions. This makes them convenient for conducting transactions on cryptocurrency exchanges, buying other assets or making payments.
• Convenience and availability. Stablecoins are available for use on various platforms and services. Their ease of use and fiat-like familiarity make them attractive to investors who don't want to deal with the volatility and complexity of other cryptocurrencies.

What are the popular stablecoins?

There are several stablecoins that are widely used in the cryptocurrency community. We invite you to familiarize yourself with some of them.

Stablecoin list:

• Tether (USDT): Tether is one of the most famous and widely used stablecoins. It is pegged to the US dollar and is designed to provide price stability.
• USD Coin (USDC): USD Coin — it is a token developed by Coinbase and Circle. It is also pegged to the US dollar and has a high level of trust in the cryptocurrency environment.
• Dai (DAI): Dai is built on the Ethereum blockchain. It uses a governance mechanism and a decentralized price stabilization process.
• Binance USD (BUSD): Binance USD — is a cryptocurrency launched by the popular cryptocurrency exchange Binance. It is pegged to the US dollar and provides fast and reliable transactions.
• TrueUSD (TUSD) — it is a stablecoin that offers transparency and regular audits to ensure price stability. It is also pegged to the US dollar.
• Paxos Standard (PAX): Paxos Standard — it is a dollar-pegged coin backed by Paxos. It provides fast and secure transactions.

These are just a few examples of popular stablecoins that are available on the market. It should be noted that the list of stablecoins may change as new projects appear and existing ones develop. If you are wondering: “Which stablecoin is better?”, then we advise you to take a look at the first one on the list — USDT.

How to buy stablecoins?

To buy stablecoins, you need to follow a few steps. Here is the general procedure for acquiring stablecoins on a cryptocurrency exchange:

1. Open an account on a cryptocurrency exchange. Choose a reliable and regulated cryptocurrency exchange where you can buy the crypto coins you need. Create an account on the exchange and complete the identity verification process if necessary.
2. Top up your account. After creating an account, replenish it with funds. This can usually be done via bank transfer, credit/debit cards, or other available deposit methods.
3. Choose a stablecoin to buy. Find a trading section or market on an exchange where stablecoins are available. They are usually denoted by their respective symbols such as USDT, USDC or DAI. Choose the desired stablecoin to buy.
4. Enter the amount and complete the purchase. Enter the amount of stablecoins you wish to purchase and complete the trade. Pay attention to the price and commissions charged by the exchange.
5. Store stablecoins in your wallet. After completing the purchase, it is recommended to transfer the coins from the exchange to your own cryptocurrency wallet. This will increase the level of security and control over your funds.

It is important to remember that each cryptocurrency exchange may have its own features and purchase procedures. Therefore, it is recommended that you familiarize yourself with the instructions and rules of the specific exchange where you plan to purchase stablecoins.

You can buy stablecoins on the platform Buycoin.online. The Buycoin.online service stands out from the background of most other services, because it allows you to instantly exchange cryptocurrency for fiat money and vice versa. Buycoin.online — is a cryptocurrency exchange service that works in a fully automatic mode, and the completion of the transaction takes only a few minutes. We recommend that you use our cryptocurrency conversion service and evaluate our excellent capabilities in this area for yourself.