The cryptocurrency market is a roller coaster with downs and ups and highs and lows. Bitcoin could be reaching the sky one day, but it’s likely to fall to the ground the next day. The sheer uncertainty of the world of cryptocurrency doesn’t allow investors to put their trust in it.
Imagine having a cryptocurrency that is secure with low costs, and is asset-backed. Asset-backed is indeed a good thing, but it looks natural, right? But it’s feasible by using stablecoins. It’s a brand new concept rising on the ladder of crypto popularity. It is possible that you would like to know more about asset-backed cryptos, so let’s get started.
Understanding Stablecoins:
Most popular cryptocurrencies, such as bitcoin and Ether, tend to be affected by high volatility. The term “volatility” refers to the degree of uncertainty resulting from fluctuations in the worth of an asset. Higher volatility indicates that the asset’s value can change dramatically over time in either direction, while lower volatility indicates its value is stable. The degree of volatility can be determined by daily return quantifiables analyzing an asset’s percentage of points (pips) changes.
Stablecoins are cryptocurrencies whose values are tied to commodities, currencies, or financial instruments. Stablecoins seeks to offer alternatives to the volatility of some of the most popular cryptos, including ethereum and bitcoin, which makes these investments unsuitable for widespread use in transactions.
The most well-known stablecoins are specifically linked against the US dollar. Although their prices do not differ, the difference is noticeable in the amount of capitalization. Tether is the third-largest cryptocurrency by size and is undoubtedly the top performer in this. USDT comes from the eponymous Tether Limited company. In the past, Tether Ltd. has issued assets linked to other fiat currencies, such as the Euro, Japanese yen, Chinese Yuan, and gold.
The Need for Stablecoins:
With no long-term or short-term stability, most people view cryptocurrency as extremely risky. This is an ideal reason not to use the cryptocurrency market as a replacement for traditional fiat currencies. Making cryptocurrencies a complete alternative to conventional fiat currencies requires stability. A volatile currency can affect the purchasing power of the person who holds it.
How do Stablecoins affect cryptocurrency prices?
Cryptocurrencies aren’t associated with any company or government. They are also not governed by social, political, and different economic factors. These currencies, which are dependent solely on demand and supply in the market, could thus be very volatile.
The volatility is both the cause and the result of the deficiency of public (whether personal or institutional) confidence in cryptocurrency as a secure and sustainable option for currency. This is why people consider cryptocurrencies to be an investment that is speculative due to the lack of a standardized system to guide their acceptance. Due to the high degree of distrust of cryptocurrencies, investors tend to opt for safer alternatives such as Stablecoins.
Benefits of Using Stablecoins:
- Faster Speed:
Stablecoins speed up cross-border payments and are more affordable. They can be easily exchanged with fiat currencies via cryptocurrency exchange platforms since they are widely accepted by trade platforms, and they are extremely liquid.
KuCoin is a major cryptocurrency exchange offering the capability to buy, sell, and trade cryptocurrency. Alongside the standard trade options, KuCoin also provides the option of margins and futures as well as peer-to-peer (P2P) trading.
- Lower Fees:
Processing fees for credit cards across major credit card firms like Visa, MasterCard, and AmEx average around two percent for each transaction. Due to this, small businesses often charge their customers higher fees when they purchase credit cards and restrict the use of cards with higher fees or even limit transactions to cash. But, the high cost of transactions can be avoided by using stablecoins that provide value to both customers and businesses.
- Borderless:
Cryptocurrencies are indispensable to millions due to their untraceable, secure, borderless nature. For instance, The Venezuelan people cannot leave the country using fiat currency. They cannot transfer it abroad through their banks, and they can’t transport their cash with them as the authorities could confiscate it at the border.
- Transparent:
Anyone with internet access can view blockchain transactions using a blockchain explorer. Additionally, stablecoins provide complete transparency of the way regular audits support them, something that Stably can do. As the trust in USDT decreases, there is available for coins with more transparency to take over.
