Stablecoins are cryptocurrencies that have stable value. These coins are pegged to real-world assets like gold, oil and fiat currencies. They have been gaining popularity over the last few years because of their stability and ability to act as a store of value.
In this article we will discuss the benefits and risks associated with investing in stablecoins
What Is A Stablecoin?
Stablecoins are cryptocurrencies that are pegged to a fiat currency or a basket of fiat currencies. They’re designed to be a store of value and a medium of exchange, similar to regular cryptocurrencies such as bitcoin and ether.
The difference is that stablecoins are more stable than these other currencies because they have been pegged by their creators so they’re not at the whim of fluctuating demand or market price.
Because they aren’t truly decentralized, many people consider them less secure than other types of cryptocurrency; however, the stability they bring may make them suitable for certain financial transactions where speed and security are important but inflation isn’t an issue (like when buying goods online).
The use cases for stablecoins are vast and include trading pairs such as ELON/USDT that can be used on decentralized exchanges (DEXs), payments and more.
Are Stablecoins Good Crypto Investments?
If you’re looking for a smooth investment that won’t leave you at risk of losing money, then stablecoins are a good place to start. They allow investors who are interested in cryptocurrency but don’t want to deal with its volatility to get involved.
While the price of a single cryptocurrency can fluctuate wildly from day-to-day, stable coins remain tied to their fiat currency counterparts and can be traded like stocks or bonds through various exchanges.
Why Stablecoin is a Good Investment?
They Are Pegged on Stable Assets
Most stablecoins are pegged to the US dollar, but there are several others that are backed by other assets. The first is Tether which USDT price is equivalent to the price of US dollar. It was launched in 2014 and is based on a network of bitcoin blockchain wallets. USDT is tied to the value of fiat currency.
So if someone buys one USDT coin on an exchange, they will receive $1 worth of bitcoin at any time. To do this, Tether Holdings Limited must maintain an amount of dollar reserves equal to the total supply of USDT coins in circulation at all times.
They Are A Good Source of Passive Income
These coins are usually backed by real assets. In other words, the value of the stablecoin is actually backed by a corresponding amount of something else (like gold or silver).
You can earn passive income from a stablecoin because it does not fluctuate much in value, so you don’t have to worry about losing money if you hold onto it for a long time.
Furthermore, since the price of these coins isn’t subject to market manipulation like other cryptocurrencies such as Bitcoin, they are considered ideal investments for those who want to avoid volatility while still being able to profit from cryptocurrency trading.
They Are a Store of Value
Stablecoins are designed to store value, which is why they are a good hedge against inflation.
They can also be used as a means of saving money for later use or investment purposes. For example, if you want to save up USD$1000 but do not want it to lose value due to inflation while waiting, then stablecoins are an ideal option for this purpose.
Risks of Investing in Stablecoins
They Are Not Fully Decentralized
Stablecoins are not fully decentralized. They have a centralized issuer and clearing house, which means they can be shut down by authorities. This is true for all cryptocurrencies, but stablecoins face additional risks because of the nature of their operations.
Algorithm Stablecoins Lack Real Backing
Stablecoins are not backed by real assets, and they’re not regulated. They’re also not decentralized, transparent or secure. In fact, they have no central authority backing them up at all. This means that you have to trust the algorithm alone for your investment to remain safe – which is a big risk when it comes to investing in any type of cryptocurrency.
They are not regulated
Stablecoins aren’t regulated either federally or internationally, so there’s no guarantee that you’ll get your money back if something goes wrong with your account or transactions involving your coins go awry!
They are not transparent
It’s difficult to track the total supply and distribution among wallets due to the complex nature behind how they work (i.e., “pegging” their value). That said, transparency may improve over time as platforms mature their offerings through new features such as on-chain settlement records that allow users greater insight into how much liquid inventory exists within each respective network token address(es).
We have seen that stablecoins are a good investment and can generate passive income. They can be used as a store of value, but they are not completely decentralized or regulated. Risks associated with investing in stablecoins include lack of decentralization, which makes them vulnerable to hacking attacks.
The algorithm-based nature of these coins makes them less secure when compared to other cryptocurrencies like Bitcoin or Ethereum; lack of regulation could mean less protection for investors.