What are Stablecoins?
Stablecoins are cryptocurrency tokens that are designed to reduce volatility, they achieve this by being pegged to a more stable asset. The most popular stablecoins are most often pegged to the US Dollar. Stablecoins adopt a fixed exchange rate, meaning that the price of the stablecoin is fixed to the asset.
What are Stablecoins Backed By?
Fiat Backed Stablecoins
Both USDC and Tether are incredibly important in the world of cryptocurrency, this is demonstrated by their market capitalisations:
Tether – $43 Billion
USDC – $10.7 Billion
Commodity Backed Stablecoins
Commodity backed stablecoins are fixed to commodities such as precious metals like gold or silver, the main benefit of these is that they will not be effected by inflation, unlike fiat currencies. One of the main commodity backed stable coins is Pax Gold (PAXG).
Stable Coin Uses
Stablecoins are most regularly used for trading, when a trader wants to exit a trade they will most often either close their trade by selling the cryptocurrency for either Bitcoin or a US Dollar backed stablecoin. This means that they can retain a stable asset in their exchange account without worrying about the volatility of altcoins or having to keep depositing fiat currency from their bank account.
Stablecoins are also a great way to ‘take your chips off the table’ when you feel that the crypto market as a whole is likely to crash. They provide the ‘dry powder’ so that you are ready to pounce when there is a drop in price and buy the dip!
Stablecoins are available on all major exchanges, have a look at our best crypto exchanges page to start your crypto journey.