There are different types of coins in the crypto world. You may also have heard of stable coins. But do you know what stable coins are? However, it can work to your advantage if you know what stable coins are and how to use them. That’s why we explain what they are, how you can use them and why you should!
- 1 What are stable coins?
- 2 What are stable coins used for?
- 3 The benefits of stable coins
- 4 Are there also disadvantages?
What are stable coins?
There is Bitcoin , altcoins and also stable coins. Stable coins is slightly different from all the other crypto coins. There is something that stable coins have, and other cryptocurrencies don’t. And that is that they are valuable.
Normal crypto coins can rise or fall in value. This is due to the market. Here supply and demand determine the price of the crypto coin. When there is more demand for a certain crypto coin, the price will rise. Is there less demand? Then the price of this crypto coin falls.
This has several advantages. Because the price falls and rises, you can see these crypto coins as an investment. You speculate on the price and buy them cheaply, after which you hope to sell them at a higher price. Then you have made a profit, and your investment is successful.
But you don’t use stable coins for the same purpose. Stable coins always have a stable price. The price does not fall, but neither does it rise. For example, a stable coin could always have the value of 1 dollar.
Now you are probably wondering what the heck is the point of stable coins when they always represent the same value. So let’s explain what stable coins are used for.
Examples of stable coins
There are different types of stable coins on the market. Each stable coin has its own properties. The most famous stable coin is Tether. This stable coin runs on the Omni blockchain and is pegged to the US dollar and has approximately 74% dollar as collateral. The total value of Tether is estimated at $4.13 billion.
Other examples of stable coins are:
- DAI (based on an algorithm)
- Gemini Dollar (pegged to the US dollar)
- USDC (pegged to the US dollar)
- True USD (pegged to the US dollar)
What are stable coins used for?
Stable coins can be used for different purposes. You will find that stable coins can actually be very useful and can save you a lot of money.
Capital safe parking
You could use stable coins to safely park your capital. Suppose you sold Ethereum for a profit, you can choose to park it on Bitcoin or stable coins. However, your profit could go up in vapor when you convert it into Bitcoin. The price of Bitcoin could fall.
It is therefore safer to store your capital in stable coins. This way you can be sure that the value will always be the same. So that can save you a lot of money. Fortunately, that is not the only thing stable coins can be used for.
Use as digital and national currency
Because the value of stable coins does not fluctuate as much as, for example, Bitcoin or other altcoins, it is much more attractive for countries to use such a currency as a digital and national currency.
Suppose Bitcoin becomes the new national currency of the Netherlands. Then the prices of our daily products would have to be adjusted every day. The value of Bitcoin can vary greatly from day to day. So it is not exactly practical to use such a coin.
Stable coins, on the other hand, are very attractive for countries to use as a digital currency. China , for example, is already working on this. Companies such as Facebook are already developing their own stable coin (Libra).
No loss of value during the transaction
It can normally take a while for a transaction to be validated. As a result, the value on arrival may be different than when the transaction was actually made. And that can of course cause problems.
Suppose you pay with Bitcoin in a restaurant. The moment you pay, you transfer 0.0012 Bitcoin. It takes about 10 minutes for the transaction to be received by the restaurant. However, the value of Bitcoin has fallen in the meantime, and they actually get 0.0011 Bitcoin. That seems like a big difference, but on a large scale it can cause a lot of problems.
Therefore, stable coins could be used in these kinds of situations, where it is not desirable for the value to fluctuate during the transaction.
The benefits of stable coins
You can already reap some benefits from the above user situations. Let us briefly discuss the advantages of stable coins. You will find out how stable coins can work in your favor.
Stable coins are reliable
Because stable coins have a fixed value, they are very reliable. You can be sure that the value of stable coins will not fall or rise. That is why you can put your money in stable coins without any worries.
You lose no/less money with stable coins
Since the value of stable coins is always the same, you will not lose any money. You can therefore put the profit you have made in stable coins without any problems. This way you can be sure that you will not lose the winnings again.
Are there also disadvantages?
You now know what advantages stable coins have and what they are used for. But of course stable coins also have disadvantages. For example, non-algorithmic stable coins require a lot of capital as collateral before they work. That costs a company a lot of money, and they cannot invest that money in their own company.
There is also a risk for the consumer here. Because as a consumer you are dependent on the company that provides the collateral. This collateral also carries risk. Because it contains so much money, it is a target for fraudsters and criminals.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com