Maybe you’re new to cryptocurrency and blockchain market, or maybe even though you don’t consider yourself to be tech-savvy, you like to learn more about NFTs, different cryptocurrencies, and DeFi projects; in either case, our weekly recap is for you!
In this week’s recap, we want to talk about Stablecoins while checking the market condition of the top 5 stablecoins of this week.
Stablecoins: The Solution For Crypto Volatility
You don’t need to be an expert to realize how volatile cryptocurrency market is. The price movements in this market are sharp which makes cryptocurrencies a less convenient option for everyday use, like paying for goods and services.
Stablecoins were developed as a way to solve this issue. They follow the price of another relatively stable asset like fiat currencies (e.g. dollar, euro) or precious metals (e.g. gold).
Many online websites accept crypto payments these days, but as mentioned before, price volatility may cause a problem. For example, assume you have a service and decide to sell it for 0.1 BTC. You’re selling your service at that price because Bitcoin is around $40,000. But the next day, Bitcoin’s price drops to $35,000 which makes your 0.1 BTC to worth less.
Stablecoins are stable cryptocurrencies and therefore a better option for online payments. Other than that, they represent a 1:1 ratio with their respective fiat currency. It makes it easier for you to understand exactly how much you paid compared to other currencies, like bitcoin, because the merchant may consider its own rate (higher or lower than the fair market price)
Crypto market traders also use stablecoins as a way to hedge (protect) their assets against sharp market crashes. Instead of exchanging their crypto assets for fiat currencies, like the US dollar, they can simply exchange them with a related stablecoin, like Tether. In this way, they can easily buy back crypto once the market settles and don’t have to deal with the high fees and delays of traditional banks.
And last but not least, stablecoins are a great tool for remittance which is the fancy term for transferring money to another location, mostly far away. They’re blockchain-based so you can transfer them to anyone with a crypto wallet. They are significantly faster and cheaper than traditional bank transfers.
Top 5 Stablecoins by MarketCap
Let’s take a quick look at the market condition of the top 5 stablecoins by MarketCap:
Source: CoinMarketCap.com
As you can see, the price of each stablecoin stays within a close range of $1. Tether is the third-largest cryptocurrency in the world and by considering its 24h volume ($52B), you can figure out how practical it is in crypto markets.
Stablecoins like Tether (USDT) or USD Coin (USDC) are fiat-backed. It means that for each USDT or USDC, there is $1 kept in their reserve. So in theory, you put your dollars in the reserve and take an equal amount of USDTs. Dai also follows the US dollar, but it keeps other cryptocurrencies in its reserve.
Endnote
Stablecoin: cryptocurrencies that follow the price of another relatively stable asset like fiat currencies (e.g. dollar, euro) or precious metals (e.g. gold).
Remittance: transferring money to another location, mostly far away.