What are Stablecoins?
Stablecoins are cryptocurrencies that are somewhat stable and are linked 1:1 to a currency that we currently use a lot. In most cases, this is to the United States Dollar (USD). There are even stablecoins that are equal to the price of gold, silver or platinum. Currently, there are several Stablecoins available on different exchanges. Behind every Stablecoin, there’s a company which makes sure that for every issued currency there’s a dollar (or another fiat currency) on the bank. These companies bear the responsibility of actually owning the assets themselves.
Which Stablecoins are available?
- USDT (Tether): 1:1 backed by the dollar. The largest company with the largest market share and is suspected of market manipulation and lack of assets
- TUSD (TrueUSD): 1:1 backed by the dollar.
- PAX (PAXOS Standard): 1:1 backed by the dollar.
- DAI (Maker): 1:1 backed by the dollar. Decentralized!
- GUSD (Gemini Dollar): 1:1 backed by the dollar.
- EURS: 1:1 backed by the euro
- SGDR: 1:1 backed by the Singapore dollar
What are Stablecoins used for?
Traders use Stablecoins to quickly switch to fiat. It is often not possible to quickly switch from Bitcoin to Dollar or Euro on an exchange. To do this, the Bitcoin must first be withdrawn and converted to Euros via a broker. But in the fast-crypto market, you need to be able to trade fast. If a trader expects the price of Bitcoin to drop, he can buy USDT at the current price, for example.
Example: 1 BTC currently costs exactly 8000 USD, and you expect the price to drop. Take a position in a Stablecoin and convert 1 BTC to 8000 USDT. If the price drops to 7000 USD, then you can buy 1.14 BTC again with your 8000 USDT. This means a 0.14 BTC profit.
The advantages of Stablecoins
- You always have a stable price when trading.
- You can take a break by going back to USD.
- Ability to protect your position.
- Escape the volatility.
- Some companies behind a currency are not transparent and may not have the assets at their disposal.
- Companies behind a currency can manipulate the market by printing new coins.
- There’s a central company behind the coin.
- Although the currency must be equal to USD 1, it can sometimes differ by a few percent.