Home Crypto Crypto Guides What Problems Do Stable (cryptocurrency) Coins Solve?

What Problems Do Stable (cryptocurrency) Coins Solve?

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Introduction

We have learnt a lot about cryptocurrencies and their properties in our previous guides. Even though this financial instrument has gone through a lot of up & down in the last three years of the past decade, many financial experts believe that this asset class can still be considered a potential investment. Some experienced crypto traders believe that Bitcoin, at its peak (~$18,000 in Dec 2017), is still undervalued. This is because of the strong fundaments Bitcoin possesses. Not just Bitcoin, the entire crypto market has enormous investment potential in this decade.

The Need for Stable Coins

But there is one thing that concerns both short-term and long-term crypto investors – which is undoubtfully the volatility. Most of the cryptos currently present in the market possess huge volatility. This is one crucial reason why most of the investors are not confident enough to invest in this space. This volatility is also the reason why cryptos cannot be used as a standard medium of exchange. Hence the need for a Stable Currency or Stable Coin has risen.

A Stable Coin is a currency that has all the critical properties of typical crypto while achieving price stability. This stability in price is achieved by pegging their value to the major fiat currencies like USD & Euro in a 1:1 ratio. One of the very first and famous stable coins is Tether, and its value is pegged to USD. So the value of one Tether (₮) is always equal to one US Dollar ($). The main goal of any stable coin is to achieve maximum decentralization while maintaining price stability. But in the case of Tether, even though it has most of the properties of crypto, it is highly scrutinized ever since it is pegged with the USD.

Significance of Stable Currency

Stable Currency, as the name suggests, provides both short-term & long-term stability for the traders and investors. Short-term stability allows users to make day to day transactions just like fiat currencies. While the long-term stability provides confidence for the investors to include these stable coins in their portfolio. For instance, in the case of extreme bear markets, crypto traders and investors must need some stable storage where they can protect their portfolio from significant losses. The only other way is to convert all these cryptos to desired fiat currencies and convert back to crypto again once the downtrend is over. This sounds redundant. Isn’t it?

But with the help of stable coins in their portfolio, investors can just trade the cryptos that are bleeding for stable coins and hold them without having to worry about the volatility. Apart from the investment point of view, stable coins can also help short-term crypto traders to confidently keep their profits that they have gained within the exchange wallets (in the form of stable coins). But in the absence of stable coins, they will have to continuously worry about them losing their profit value due to the high volatility.

If you are interested in adding stable coins to your portfolio, we have mentioned some of the most promising ones below.

TetherMakerDAOTrue USDCarbon

Many stable currency projects like these have come to existence after Tether, and some of them showed promising results. However, a completely decentralized stable coin that can be used for day-to-day transactions securely is yet to come.

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