Are you having trouble cashing out your digital assets to make payments? Are you concerned about the bitcoin industry’s price volatility? Then Stablecoins are an excellent choice for you. Let’s take a closer look at Stablecoins and their advantages.
Even though the cryptocurrency market is still in its early stages, price volatility remains the biggest concern. Investors cannot hold cryptocurrencies for a consistent price and consider them as long-term investments. They can’t readily turn them into cash to make payments or transfer to banks. Stablecoins are crypto assets that can address both price volatility and usability issues. Because of their adaptability and durability, Stablecoins are becoming increasingly popular among seasoned investors and new crypto fans.
What are Stablecoins?
Stablecoins are cryptocurrencies backed by stable assets at a 1:1 ratio. Every Stablecoin has a reserve of the backing asset. This reserve aids in the management of price volatility and allows it to be used in payments.
USDC and Tether, for example, are linked to the US dollar, which means that their market prices will always be closer to the US dollar’s market value. Precious metals, commodities, and other stable assets can also be used to back the Stablecoin, such as Goldcoin, backed by a physical quantity of gold. The Stablecoin becomes non-volatile and more acceptable for payment since the issuer of the Stablecoin keeps a reserve of stable assets.
Why are Stablecoins the preferred investment choice?
Stablecoins maintains a balance between the fiat market and crypto markets. Thus, it enjoys a very high level of liquidity and low volatility. USDT (Tether) is used in more than seventy-five percent of Bitcoin trading due to its reliability and stability. High transaction volume also enhances its usefulness and liquidity for crypto investors in high, volatile market conditions.
The features and benefits
1. Safe-Haven Assets: Precious metals like gold and commodities are historically sought-after “safe-haven” assets during times of volatility. From the historical period till today’s modern era, gold has maintained its place. Thus, Stablecoins backed by precious metals like gold and commodities is also considered a safe-haven asset. It gives investors the comfort of owning gold with additional benefits like increased liquidity, usability, and stability.
2. Remittance: Often, global companies face problems making payments to employees in diverse regions. Employers may access employees’ global pool. But, the question arises when their staff resides in many countries. The use of Stablecoin for making payments to the staff can be a good option in the new digital economy.
3. Payments: The payments using Stablecoins are borderless since they connect in real-time, global markets. For a worker residing in another country, adopting Stablecoins for remittances becomes a faster, cheaper, and more convenient option.
4. Trading: One additional advantage of using Stablecoins is access to the wide world of crypto markets. If an investor holds Stablecoins, it can quickly transfer them to other digital assets that can be used while participating in Initial Exchange Offerings (IEO), Defi applications, or joining meme competitions on Twitter for crypto prizes.
5. Escrow: The escrow process has become automated using smart contracts that evaluate the escrow conditions without any involvement of institutional intermediation. Stablecoin smart contracts are available on the blockchain, which is publicly auditable. As escrow smart contracts back Stablecoins, it gives price stability to the investors.
6. Lending: Stablecoin lending is considered one of the high-yield opportunities for debt investors. Massive institutional demand for Stablecoin loans has fueled this demand and tied it to trading. Stablecoin returns on the decentralized crypto lending platform are recorded as 15% highest against the 2.15 APY offered by the banks on the savings account.
7. Settlement: Often, payments are delayed due to the constraint of regular banking hours. Stablecoins can be operated 24/7 as they are based on the blockchain network and not on the business hours of centralized financial institutions. Money transfers could be done instantly using Stablecoins.
Final Thoughts: The popularity of Stablecoins is increasing due to the rise in awareness about its benefits like the high speed of the transaction, lower processing speed, low price volatility, etc. In the following article, we will discuss more commodity Stablecoins. If you have more queries, please comment in the box below. Team Blockchain Shiksha would be happy to engage with you in conversation.©
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