What Is a Stablecoin?
April 13, 2022
As you read and learn more about cryptocurrency, one term you might come across occasionally is “stablecoin.”
What are stablecoins, and how do they work? In this quick guide, we’ll cover the basics.
What Are Stablecoins?
Stablecoins are digital currencies whose market values are pegged to reserve assets like gold or U.S. dollars. Because they’re backed by “stable,” physical assets, stablecoins should be far less volatile than other cryptocurrencies, such as Bitcoin.
However, because stablecoins are so darn… well… stable, they’re not particularly effective for earning profits from speculative trades. After all, their appeal is in the fact that they don’t fluctuate by the minute, like other cryptocurrencies.
Most stablecoins are used for specific trading platforms. For example, the USD Coin, which is pegged to the U.S. dollar, was created to be used on Coinbase. Tether is used primarily on Bitfinex.
And Binance USD is used on… you guessed it… Binance.
What Can You Use Stablecoins For?
The main use of stablecoins is for facilitating trades on cryptocurrency exchanges.
When buying cryptos like Bitcoin or Ether, exchange users trade their fiat money (such as U.S. dollars or euros) for stablecoins and then use those stablecoins to buy other cryptocurrencies.
And then, when “cashing out” of a crypto trades, they’ll receive stablecoins and can then swap them out for regular currency or put them into other crypto trades.
Think of stablecoins like tokens at an arcade.
But stablecoins can also be used to transfer money across international borders without incurring crazy-high fees.
This use for stablecoins has made headlines recently, because many people are using stablecoins to donate directly to charities helping Ukraine.
Recently, the refugee agency of the United Nations, UNHCR, began accepting billions of dollars’ worth of stablecoins to provide humanitarian aid to Ukranians fleeing the war.
You can also use stablecoins to earn interest. Platforms such as Celsius, Nexo, and Blockfi pay annual percentage yields as high as 20% — that’s far better than what you can expect from any bank savings account.
For more advice and education on trading stablecoins, Bitcoins, NFTs, and everything else cryptocurrency-related, check out Titan Alerts. A basic membership is 100% free, and you’ll receive daily trading intel and education.