According to Investopedia Stablecoins are cryptocurrencies where the price is designed to be pegged to a reference asset. The reference asset may be fiat money, exchange-traded commodities (such as precious metals or industrial metals), or a cryptocurrency.
Unlike traditional cryptocurrency, a stablecoin’s value is established by a stable asset. In most cases, people refer to stablecoins as having a value linked to a fiat currency, such as the U.S. dollar. However, they can also have their value linked to precious metals or other cryptocurrencies.
Because crypto markets can be volatile, Stablecoin has the purpose of providing price stability when people transact across coins or between fiat and digital currencies.
How Do You Use Stablecoins?
In essence, stablecoin functions as a bridge between volatile cryptocurrencies and stable real-world assets, like fiat. Trading stablecoins instead of dollars allows you to keep all of your transactions within crypto exchanges, which saves you from fees charged by many exchanges.
Assuming you have some Bitcoin in your Mybitstore wallet and want to buy Ethereum with that Bitcoin, you could exchange your Bitcoin for stablecoins, like USDT, at a U.S. dollar value, and then buy Ethereum with your stablecoins.
Because Ethereum and Bitcoin use separate blockchains and often remain largely cut off from each other, using a stablecoin as a middleman can save you on fees, making your crypto more stable during times of volatility.
The most popular Stablecoins are
- Tether (USDT) –with a $78 billion market cap, it’s also the largest by far
- USD Coin (USDC) – with a market cap of more than $42 billion, making it the second-largest stablecoin by market cap
- Binance USD (BUSD) – with a market cap of more than $14 billion, BUSD is the third-largest stablecoin in the world
- TrueUSD (TUSD) – with a market cap of more than $ 1.25 billion
Benefits of using Stablecoin
A stablecoin is primarily used for facilitating crypto trade on exchanges. As opposed to buying bitcoin with fiat currency, traders often convert fiat into a stablecoin and then exchange the stablecoin for another cryptocurrency like bitcoin or ether.
Another benefit of using Stablecoin is to stake and lend, or to mitigate trading fees. That’s because some exchanges like Mybistore charge less for exchanging US dollars for stablecoins.
Transferring funds across borders is another advantage of stablecoins.