What is a stablecoin and is it a good investment?

In the volatile world of crypto, stablecoins are the safehouse to “lock” one’s profits. But what is a stablecoin exactly and is it inherently a good concept?

What is a stablecoin?

Stablecoins are cryptocurrencies that are created with the purpose of minimizing the volatility experienced in the crypto market. 

These coins are pegged to the value of FIAT currencies, such as the US dollar and the British pound, or other assets and commodities, such as gold and silver. In recent times, and after the success of Tether, this type of cryptocurrencies has increased in popularity and there are now many stablecoin projects, across different platforms.

Moreover, and while most stablecoins are backed by FIAT money or other commodities, there are also stablecoins that are tied to an algorithm to maintain their value. These are also known as seignorage-style stablecoins (not backed).

Are stablecoins a good investment?

Based on the negative market conditions of 2018, many people have seen a lot of success by investing in and exchanging stablecoins with cryptocurrency. They are now a viable option for people who choose to “sit on the sidelines” until the conditions of the market show a clear indication of an upcoming upward trend.

What is the difference between all the different stablecoins?

As you might have noticed there are many different stablecoins on the market. Some of them are more popular than others, but they all support the same function. Here are their main differences:

  • Stablecoins are tied to different traditional currencies, such as USD, EUR, and GBP. As time goes on, more stablecoins will be created to support all currencies of countries that are embracing the use of Blockchain technology.
  • Stablecoins can also be tied to other stores of value, like gold and silver.
  • Finally, big cryptocurrency exchanges are also building their own stablecoins. Doing so helps the customers of the platform “lock” their value in traditional currencies without going through the process cashing out their funds.

How stablecoins will fuel mainstream adoption

The use of currency pegged cryptocurrencies has helped many people avoid the dreaded moment of “cashing out”. Not only does it help traders save money on fees and taxes, but it also makes trading much more efficient.

And that is just the beginning. When the market started observing the huge liquidity of Tether, massive cryptocurrency exchanges like Binance and Gemini, started creating their own stable coins as well.

The success of their cryptocurrencies as a means of exchange reached even further. Facebook’s Mark Zuckerberg saw the potential of this concept too. He brought a team together to explore the possibility of creating a coin that Facebook users could exchange value with. What they came up with is Libra.

At this moment, Libra has been put on hold, due to US regulations. However, this has not stopped countries and governments from catching up. China and France are reportedly looking into blockchain technology as a means of tokenizing their national currencies.

This, in essence, means that they are creating stablecoins that are pegged to the value of their own national currency.

According to Bitcoin expert Anthony Pompliano, the county that will first embrace Bitcoin and utilize blockchain technology will gain the most benefit from it in the long run. All that remains is to see where this trend is headed.

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