Cryptocurrency Investing: What Are Stablecoins?

Unlike other cryptocurrencies, Stablecoins attach their value to external assets, like the US dollar or gold. They rely on them for stability.

Stablecoin: An Answer to Volatility

Stablecoins are a cryptocurrency. But because their value is attached to a reserve asset, they get to skip the discomfort of extreme volatility.

However, while Stablecoins essentially nullify volatility, they also remove various potential investment opportunities. This mostly impacts short-term and day traders (i.e., arbitrage traders).

Analyzing the Stablecoin Market

The Stablecoin market is determined by the collateral, the asset for lenders that functions as security. This can come in the form of fiat, crypto, and even algorithmic Stablecoins.

Stablecoins that use crypto as collateral are another option. Of course, they have to deal with the volatility involved with the security.

The third, and final, option for Stablecoins is the algorithmic type. Instead of using a reserve asset, it relies on an algorithm that operates on the blockchain to continuously monitor and modify the supply of the same Stablecoin.

A Price-stable Cryptocurrency Option

Among all the different types of cryptocurrency currently available, the Stablecoin is considered the best at mitigating the ups and downs of crypto prices. It does away with price volatility and leans heavily towards pegging to the value of the collateral it represents.

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