Stablecoins Explained: Why They Matter

Every digital asset you see online is not cryptocurrency. There are distinct classifications. Some people mistakenly identify a non-fungible token as one of the ‘cryptos’ with which the market has been hyping about.

The same goes for stablecoins. Stablecoins aren’t the same as cryptocurrencies, although they resemble each other in many ways.

What are stablecoins?

In simplest terms, stablecoins are cryptocurrencies pegged to fiat currencies like USD. Unlike pure cryptocurrencies like Bitcoin and Ethereum, stablecoins don’t change in value as much as these cryptos. Since they are pegged to fiat currencies, this makes them half crypto, half fiat currency.

The first-ever created stablecoin was Tether (USDT). It was released in 2014, and many other stablecoins followed. For every dollar deposited in an exchange wallet, users or investors get one token. In general, these tokens can be converted back into fiat currencies. Usually, the exchange is 1 token = 1 dollar (or any other fiat currency where the token is pegged).

What are stablecoins?
Photo by Financial Times

As of July 2021, Tether’s outstanding value is around US$62 billion. This is more than half of the market capitalization for all stablecoins in the world. After Tether, USD Coin is popular, with a market capitalization of US$27 billion.

Why do stablecoins matter?

Stablecoins are different types of digital currencies. They are not pure cryptocurrencies. Instead, they possess both what crypto and fiat currencies have. If you think about it, stablecoins save investors from the risks they could have experienced when investing in pure cryptocurrencies. If you invest in these digital coins, you are exposed to crypto while allowing the fiat currency to save you from drastic price plummeting.

Aside from exposing yourself to crypto without too many risks, stablecoins also work with smart contracts, which are more advanced than standard contracts. You need stablecoins to be able to experience how a smart contract functions. With a smart contract, there’s no need for legal authority coming from banks and the government. Anyone can transact with a stranger on the blockchain because of this smart contract, making stablecoins programmable.

Why stablecoins matter
Photo by Financial Times

Stablecoins are also cheaper and easier to put into applications and software. For developers, stablecoins make it easier for them to encourage people to use their applications. So, instead of using fiat currencies, users can use stablecoins to play and earn through decentralized applications.

The best stablecoins in the market

If you are looking for a huge stablecoins list, Coinmarket has provided the top stablecoins. Per its website, with the following being the best stablecoins in the market as of this writing:

How to earn interest on crypto using stablecoins

Decentralized stablecoins can be used in different decentralized applications. To earn interest on your crypto, you can exchange them for stablecoins first, then find applications where you can invest them.

The first way to earn from stablecoins is by trading. Just like stocks or forex, stablecoins investors use charts to make a successful trading. So, the fundamental requirement here is your trading skills. If you can’t read charts, you need to understand how they work.

Another way to earn from stablecoins is by long-term investing or holding. A few technical skills are needed to know when to enter and exit your trades. You need a firm belief that such a stablecoin will go up in the future. This is going to be your foundation when selecting which stablecoin to invest in. Like anything, do your research before you buy.

You can also use your stablecoins to stake. First, you have to find a staking platform where stablecoins such as USDT are accepted. Choose a reliable staking platform where rewards are worth it. Your stablecoins work just like your crypto when it comes to staking. Your rewards would depend on how much you stake and the period of staking.

Final Thoughts

If you are looking for a safer way to get exposed to crypto without actually bearing all the risks, you can invest in stablecoins. When you invest in these tokens, you are balancing the risks of crypto and the safety of fiat currencies.

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