Over the past few years, the market growth and demand for the cryptocurrency market have grown immensely. Despite that, the financial investment experts consider Bitcoin Official Website investment volatile. With price swings of 10% or more in a single day, it can be difficult to keep track of your assets and monitor your investments effectively. 

That’s where stablecoins come in. This guide will help you understand what stablecoins are, why they exist, and how you can use them to protect your investment portfolio from falling victim to volatility.

Overview of Stablecoins- What You Need to Know 

So, what is a stablecoins? Stablecoins are designed to minimize the price volatility of cryptocurrencies. For those who wish to invest in cryptocurrencies but hold themselves back due to the extreme volatility factor, stablecoins can be a fine option to go with.

In this blog post, we will introduce you to five of the most popular stablecoins: USDT, USDC, DAI, TUSD, and PAX. 

By using tethers as an example, you can think of fiat-backed stablecoins as tokens that are connected to your bank account and held at a particular exchange. For an instance, if you transfer $1 from your bank to that exchange, then it creates 1 tether token (USDT) to give back to you. 

This makes it easy for people who are new to cryptocurrencies because they can easily move money into cryptocurrencies without having their cash lost or stolen or worrying about any other form of fraud or theft.

Functioning of Stablecoins- How Do They Work?

A stablecoin is a digital form of dollars. It means the cryptocurreny is collateralized with a fiat currency. It necessarily doesn’t need to be dollars. It can be a physical asset like gold or silver. When it comes to categorization of stablecoins, then there are the following categories:

1. Fiat-pegged cryptocurrency
2. Crypto-pegged cryptocurrency
3. Algorithmic cryptocurrency

If we talk about the most popular form of stablecoins, you should note that it is the fiat-collateralized stablecoins. This form of stablecoins is backed by fiat currencies. Another popular form of stablecoin is the crypto-collateralized stablecoin. This form of stablecoin is backed by cryptocurrencies. And finally, there is the commodity-backed stablecoin, which is backed by a reserve of commodities like gold or silver.

Stablecoins are less volatile than conventional cryptocurrencies. The market fluctuations don’t dramatically impact the value of stablecoins, and hence it easily overcomes the market dynamics. Hence, the investors are adding this cryptocurrency to their list. 

Advantages of Using Stablecoins

• Price stability- When the value of a traditional cryptocurrency fluctuates wildly, it can be difficult to use it as a means of exchange or store of value. But with a stablecoin, you can be confident that each unit will always be worth roughly the same amount. 
• Easier to use- Because stablecoins don’t experience the same price volatility as other cryptocurrencies, they’re much easier to use for everyday transactions. 
• More widely accepted- Because they’re more stable, businesses and merchants are more likely to accept stablecoins as payment. 
• Lower transaction costs- When you make a transaction with a traditional cryptocurrency, you often have to pay a gas fee in order to have it processed on the blockchain.

Disadvantages of Using Stablecoins

Besides having multiple advantages, stablecoins have a certain set of advantages as well. Highlighting one of the drawbacks, stablecoins are not widely accepted like other forms of cryptocurrencies. This gives an indication that they cannot be used in all merchants or exchange platforms. 

Another drawback is that they are not as volatile, which means that their prices may not fluctuate as much, and you may not be able to make as much money off of them. Finally, stablecoins may be subject to government regulation, which could make them less desirable to use.

Conclusion

So, these were some important points every stablecoin user needed to note. Considering Bitcoin’s market demands and value one of the highest in the entire crypto investment market, you, too, can make huge financial profits with Bitcoin investment through this official site; get started today! Don’t miss the opportunity to earn good profits by logging on to a trustworthy crypto exchange, where you can also find assistance in trading.