Altcoins Vs Stablecoins: What Is The Difference
Navigating through numerous cryptocurrencies can make distinguishing altcoins from stablecoins a challenge. Despite being based on blockchain, each has its own unique role. So what really differentiates them?
This guide will explore the distinctions between these two asset types, detailing their functions, applications, and how they support your investment goals.
What Is An Altcoin?
Altcoins represent cryptocurrencies other than Bitcoin. Although BTC was the initial and most recognized cryptocurrency, altcoins emerged to overcome its limitations and provide additional functionalities and applications.
Altcoins normally serve different purposes. Some of them, such as Solana and Litecoin, are designed to improve Bitcoin's performance by focusing on scalability and speed, while others, like Ethereum, offer innovations such as smart contracts and decentralized apps.
Altcoins are defined by their unpredictable price movements. Their values can swing dramatically, creating significant opportunities alongside considerable risks. Typically, large-cap altcoins experience less price volatility than their small-cap alternatives.
What Is A Stablecoin?
Stablecoins are a special type of altcoins that focus on reducing price volatility. Their purpose is to offer the benefits of digital currencies while avoiding sharp price changes. These coins are generally linked to stable assets like the U.S. dollar or gold, aiming to maintain a 1:1 value ratio.
This stability makes stablecoins great for routine payments, global transfers, and keeping value secure. When markets are unpredictable, they give investors a stable way to store their funds.
The distinguishing characteristic of stablecoins is their categorization into centralized and decentralized varieties. Centralized stablecoins like Tether and USDC are supported by fiat reserves maintained by a central entity. And decentralized ones like Dai, employ algorithms or crypto collateral to sustain their value.
In short, stablecoins are shaped by these core principles:
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Stability: they maintain a steady value, often pegged to the U.S. dollar.
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Low risk: since stablecoins don’t change in price much, you won’t lose much money due to volatility.
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Reliability: they are supported by reserves or algorithms to maintain their value.
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Practicality: stablecoins are mostly used for transactions and as a bridge between regular money and crypto.
Examples Of Popular Stablecoins
The stablecoin landscape is broad and continually growing, with fresh options entering the scene. Among the most popular are:
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Tether (USDT): it’s one of the most popular stablecoins, tied to the U.S. dollar. Thus, each token is backed by a dollar held by Tether Ltd. This positions it as a favored option among traders prioritizing stability over volatility.
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USD Coin (USDC): backed by the U.S. dollar, this stablecoin is the product of the Centre Consortium, which involves Circle and Coinbase. It is frequently viewed as more transparent and regulated compared to USDT, featuring regular assessments of its dollar reserves.
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Dai (DAI): this one operates in a decentralized manner and doesn’t depend on conventional fiat currencies. Instead, it uses cryptocurrencies like Ethereum to back its value. The MakerDAO protocol handles its management, keeping its value consistent.
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TrueUSD (TUSD): while tied to the U.S. dollar, it’s fully supported by genuine U.S. dollar reserves securely stored in escrow. It offers transparency, as its reserves are regularly verified by third-party audits. For trading and value preservation, TrueUSD is considered a reliable option.
Altcoins Vs Stablecoins: Key Differences
It's time to examine how these two cryptocurrency types compare. Even though stablecoins are categorized as altcoins, they play a different role and act in their own ways. Stablecoins are focused on keeping their value steady for secure transactions without price swings, while altcoins aim to bring innovation and serve different purposes within the cryptocurrency space. The other key differences are:
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Price stability: altcoins can experience big price changes, while stablecoins like Tether and USD Coin aim to keep their value steady at around $1, offering more security.
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Purpose: altcoins serve a variety of functions, from payments to decentralized apps. Stablecoins are mainly for providing stability, so you don’t have to worry about price changes.
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Use cases: people use altcoins for investment, hoping their value will rise. Stablecoins are mostly used for everyday transactions, like sending money quickly or lending in DeFi platforms.
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Risk and reward: altcoins are riskier because their prices can change a lot, leading to big profits or losses. Stablecoins are safer due to stability, but they won’t bring major returns.
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Market sentiment: altcoin prices change based on news and market trends. Stablecoins stay steady since their value is pegged to something constant.
With a clear understanding of how altcoins and stablecoins differ, it’s evident how they serve unique purposes in the crypto space. Whether your priority is maximizing returns or preserving value, being aware of their specific attributes can influence your financial and practical decisions.
We hope this guide was beneficial. Send in your feedback and questions below!
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