Guide to Stablecoins: Understanding the Importance of Digital Currency

Well-known cryptocurrencies such as Bitcoin and Ethereum are highly volatile in price, making them unsuitable for use in some of the economic situations that more and more people are facing these days. However, this is not a problem. Cause those who want to avoid volatility issues can always use so-called stablecoins for savings, trading and everyday transactions.

In this article, we will tell you what are stablecoins and how do they work, what two types of stable coins there are and what are stablecoins used for by investors.

What are Stablecoins

What are stablecoins? Stablecoins are like "bridges" that connect the cryptocurrency market and the everyday fiat currency market. This connection is explained by the fact that the price of stablecoins is pegged to a reserve asset such as the U.S. dollar or gold. So what does this mean? It means that stablecoins significantly reduce volatility compared to Bitcoin or Ethereum.

What are Stablecoins in Cryptocurrency World

When we have familiarized ourselves with the basic concept, it is necessary to answer other important questions: What are stablecoins in cryptocurrency? What are stablecoins in crypto world? What role do stablecoins play in the crypto arena?

Stablecoins play an important role in the cryptocurrency market. With their help, people can do a lot of things, from day-to-day trading to transferring between exchanges. Plus, the combination of the stability of fiat with the flexibility of digital money has been enjoyed by many people. This has led to the fact that such well-known coins as USDT and USDC, being backed by multi-million dollar assets, have become one of the most popular tools for storing and trading value in the cryptocurrency arena.

How do Stablecoins Work

The answer to the question of how do stablecoins work is quite simple. Stablecoins, like other cryptos, are issued on networks of different blockchains. And to maintain stability, the issuer or their creator can release and remove stablecoins from currency circulation. And he can do this at any time, whether when the demand for tokens increases or vice versa, when the demand for them falls.

What are Two Types of Stablecoins

It is also important to know what are 2 types of stablecoins.

  • Fiat-collateralized Stablecoins
    Fiat-backed stablecoins are backed by a fiat currency such as the euro, pound sterling, the US dollar(USDT/USDC), or a physical asset such as gold (PAXG). It is the most popular and the simplest type of stablecoins with fixed coins backed by a 1:1 ratio.

  • Crypto-backed Stablecoins
    Crypto-backed stablecoins instead of the first type of tokens are backed by another cryptocurrency. An example is DAI. The peculiarity of this type of stablecoins is that the value of cryptocurrencies is very volatile, due to this they have overcollateralization, i.e. for each stablecoin with a face value of $1, there is $1.5-2 in cryptocurrency collateral reserved.

Selecting the Right Stablecoin

To carry out various operations with stablecoins, you first need to select them. To do this, you need to decide on the type of stablecoin and what you need it for, and analyze the advantages of the chosen token. We, in turn, will help you and tell you further about what are the best stablecoins.

Guide to Stablecoins: Understanding the Importance

What are The Best Stablecoins

  • USDT
  • DAI
  • USD coin (USDC)
  • BUSD

These tokens are included in this TOP list because they are widely popular and do not suffer from crises of confidence or lack of liquidity. And besides, they all do an excellent job with their main task - to provide users with the opportunity to effectively make transactions without being exposed to risks associated with volatility.

Where to Buy Stablecoins

After finding out what are stablecoins good for and answering the question of what are the TOP stablecoins, we should figure out how to buy stablecoins. But before you learn how to do this, you should first figure out where to buy stablecoins.

  • From another person. To do this, you need to provide your wallet address to the owner of the tokens and transfer money to him so that he will send the stablecoins in return. However, this method is not so popular and safe, because such a purchase process is made on trust and your intuition, and in the worst case scenario, your funds can be sent to scammers and lost forever.

  • P2P platforms. On the P2P platforms, you can still buy tokens from a person directly, on your own terms and without the participation of third parties, however, unlike the first method, working on such platforms will be safe, since P2P platforms closely monitor the suspicious activity of trading participants and collect feedback and ratings about its members so that you have more confidence in the seller.

We advise you to choose our Cryptomus P2P platform, since beginners can easily understand the process of purchasing stablecoins on their own or with the help of system managers, and experienced traders will discover other possibilities of such tokens, such as staking or the ability to pay with stablecoins for goods and services.

How to Buy Stablecoins

  1. Go to the Cryptomus website and register. After registration you will be taken to your personal account. Review your trading wallet options.
  2. To keep your funds safe, set up two-factor authentication in your settings and pass KYC-verification.
  3. In the P2P trade wallet click on Trade now.
  4. You will see current advertisements. You should select the cryptocurrency you want to buy and click on the Buy button. Set up filters: fiat, region and payment method.
  5. Select the advertisement you are interested in or create one yourself. Initiate a trade and submit a purchase request. Wait for confirmation from the seller and make payment.
  6. After successful payment, check your wallet on the dashboard. Make sure the transaction was successful!

Tips on How to Buy Stablecoins

Today we figured out what are the most popular stablecoins and what are stablecoins good for. And if you have a desire to buy several stablecoins, then these tips will clearly come in handy:

  • Learn everything about what are stablecoins before you buy them;
  • Analyze and decide which stablecoin you want to buy. For this explore what are the different types of stablecoins;
  • Buy stablecoins safely and on trusted platforms;
  • Track transactions on the platform or on a special resource - a blockchain explorer;
  • Avoid scams and suspicious activity;
  • Don't be afraid to start! The cryptocurrency world is vast and opens up access to many things.

This concludes our article. I hope we helped you find answers to questions on what are the stablecoins and what coins are stablecoins. Feel free to share your thoughts below in the comments!

Rate the article

Previous postBuy Gold with Crypto: A Precious Investment Opportunity
Next postUnderstanding Gas Fees on the Ethereum Network

If you have a question, leave your contact, and we will get back to you

Simplify Your Crypto Journey

Want to store, send, accept, stake, or trade cryptocurrencies? With Cryptomus it's all possible — sign up and manage your cryptocurrency funds with our handy tools.

comments

0

Cookies and fingerprint settings

We use cookies and browser fingerprint to personalize content and advertising, provide social media features, and analyze our traffic. We also share information about your use of our website with our social media, advertising, and analytics partners, who may combine it with other information. By continuing to use the site, you consent to the use of cookies and browser fingerprint.

We use cookies and browser fingerprint to personalize content and advertising, provide social media features, and analyze our traffic. We also share information about your use of our website with our social media, advertising, and analytics partners, who may combine it with other information. By continuing to use the site, you consent to the use of cookies and browser fingerprint.