While some cryptocurrencies serve the purpose of investment in crypto markets, they also facilitate investment work. Stablecoins are among the cryptocurrencies that fit this definition, and in fact, they are among the most bought and sold cryptocurrencies, although investors are not very aware of it.
Although it is among the most traded cryptocurrencies, the question of what is stablecoin is also a frequently asked question because the term stablecoin seems like a completely different type of crypto money to people because they are cryptocurrencies that are used too much without realizing it.
In this article, we will try to give you all the detailed information about stablecoins, with answers to the questions of what is stablecoin, what is it for, where to buy, how to buy and what are stablecoins.
What is a Stablecoin?
Stablecoin; a type of cryptocurrency indexed to the fixed price of a fiat, commodity, or cryptocurrency.
The value of a stablecoin is typically pegged to a particular fiat or commodity. In the establishment of stablecoins, which are largely pegged to the US dollar but also have variants pegged to other fiat currencies and commodities, one unit of cryptocurrency is typically equal to one unit of fiat.
The main feature that distinguishes stablecoins from highly volatile cryptocurrencies such as Bitcoin and non-stablecoins in the altcoin class is that the price of stablecoins is not intended to fluctuate.
The most well-known and clear example of stablecoins would be Tether (USDT). Tether (USDT) is a stablecoin and its value is always a cryptocurrency equivalent to the US dollar. Therefore, regardless of the price movements of Tether (USDT), it will be equal to 1 US Dollar and the price fluctuation will be completely in Turkish Lira, Euro etc. other than US Dollars. will vary according to different fiat currencies. Apart from that, Tether’s USDT will always remain stable at 1 USD.
What Do Stablecoins Do?
The most obvious advantages of stablecoins are; built to withstand volatility, offering mobility and accessibility. In other words, stablecoins are decentralized cryptocurrencies with near zero volatility. Autonomous stablecoins are not tied to a central system or institution, although they are pegged to a fiat currency.
There are several other reasons why stablecoins are popular with investors. One of these reasons is that stablecoins allow faster money transfers compared to traditional financial transactions and provide the confidentiality of financial data along with savings on financial service fees.
For example, if it is necessary to send fiat money from one place to another, but it is desired to be provided both in the fastest way and in a way that financial data is hidden, one of the stablecoins pegged to the relevant fiat money can be preferred. In this way, the confidentiality of financial data will be protected and a very fast transfer experience will be experienced, as transactions are carried out using stablecoins, which are the crypto-converted forms of fiat currencies on the blockchain.
Another major advantage is the almost complete savings in financial service fees for transfers and payments using stablecoins. Thanks to stablecoins, significant savings can be achieved, especially from the high transfer fees that occur in international money transfers.
Another feature that makes stablecoins advantageous is that they can be traded 24/7. If we need to explain this in detail, as it is known, traditional financial markets and institutions have a certain working time interval and working days. Therefore, very serious financial fees may arise in transactions that need to be made outside of these working hours and days. Since the crypto world is a 24/7 active market and the financial fees are much lower, it is possible to buy and sell foreign currency 24/7 with stablecoins.
An advantage of stablecoins that we should mention and also make them the most used cryptocurrencies is that all cryptocurrencies listed on crypto exchanges first entered from parities linked to stablecoins such as USDT and BUSD. For example, most investors use BTC/USDT or BTC/BUSD to buy Bitcoin. For this reason, all investors keep stablecoins such as USDT, BUSD, USDC in their wallets for buying and selling Bitcoin and other cryptocurrencies.
In line with these features, stablecoins do not fully fall into the category of crypto money investment, unlike Bitcoin and other cryptocurrencies. Stablecoins, which mostly serve to protect the value of the investment in crypto markets, depending on the fiat currency, can be considered as an investment against other fiat currencies other than the fiat currency in which they are indexed. In other words, instead of buying foreign currency from a bank or exchange office, an investment can be made in fiat currencies such as Turkish Lira, Euro and Sterling by purchasing a stablecoin tied to the US Dollar.
It would be wise to think of stablecoins as a form of digital money. However, despite being indexed to a fixed price and a fiat currency, stablecoins are still defined as cryptocurrencies.
Finally, stablecoins can also be used with smart contracts, a type of electronic contract that is automatically executed when its terms are met.
What are the Risks of Stablecoins?
At first glance, stablecoins may seem low risk to investors and crypto market users in terms of their advantages and features. Indeed, stablecoins are quite low-risk compared to other cryptocurrencies, but they are not zero-risk and necessarily involve certain risks.
First of all, stablecoins, like other cryptocurrencies, should be kept in a secure crypto wallet or crypto exchange. Otherwise, if the crypto wallet or exchange where stablecoins are kept is not secure enough, the risk of losing all the money is quite high.
Another risk is that stablecoins have a management mechanism, although they are decentralized and pegged to a fiat currency. Since stablecoins are produced by their founders in line with the demands of individuals and institutions, they do not have a fully autonomous structure. Therefore, the validity of both the founders and the stablecoin regarding the stablecoin to be preferred should be investigated and the preferences should always be used in favor of reliable stablecoins.
An important element of the stablecoin ecosystem are the reserves that support that stablecoin. These reserves are the final anchor in a stablecoin’s value. Without them, the cryptocurrency issuer cannot fully guarantee the value of a stablecoin.
How are Stablecoins Made and Burned?
The production of stablecoins has a very understandable and regular mechanism.
In line with the requests from individuals or institutions, the requested amount of stablecoins is produced by the founder and producer company in the blockchain and delivered by taking the equivalent of the nominal currency in which it is fixed.
On the contrary, stablecoins that are no longer needed are given to the founder and manufacturer, their value is taken, and the wasted stablecoins are irreversibly burned in the blockchain.
Since stablecoins must have an equivalent in the market, it is not possible to produce above the market value. If the founders and producers do this without even being aware of it, they may face serious penalties, and there have been examples of this.
Where and How to Buy Stablecoin?
There is no difference between buying a stablecoin and a cryptocurrency.
In other words, stablecoins can be purchased in the same way as Bitcoin and altcoin can be purchased from centralized or decentralized crypto exchanges.
At this point, the choice to be made is to choose the crypto exchange where the stablecoin is to be purchased. While the most used stablecoins such as USDT and USDC are largely on all crypto exchanges, there are also stablecoins on only certain exchanges, and if it is desired to buy from stablecoins on certain exchanges, then it is necessary to determine the crypto exchange preference in this direction.
If you want to choose a reliable and high-volume crypto exchange with the most popular stablecoins, you can choose Binance Exchange. You can click here to create an account on Binance Exchange and buy stablecoins right away.
What Are Stablecoins?
There are many cryptocurrencies that fall into the stablecoin category in the crypto markets. The vast majority of these are pegged to the US Dollar (USD). If we list the most popular stablecoins pegged to USD, we can list them as follows:
- Tether (USDT)
- USD Coin (USDC)
- Binance USD (BUSD)
- Terra USD (UST)
- Dai (DAI)
- TrueUSD (TUSD)
- Pax Dollar (USDP)
- HUSD (HUSD)
- Gemini Dollar (GUSD)
There are also stablecoins indexed to other fiat currencies other than the US dollar. For example, Stasis Euro (EURS) is a stablecoin pegged to the Euro, while Italian Lira (ITL) is pegged to Italian Lira, and BiLira (TRYB) and TRYC Coin are stablecoins pegged to Turkish Lira.
Apart from fiat currencies, there are also stablecoins that are fixed to different cryptocurrencies or DeFi protocols and whose value changes in parallel with these cryptocurrencies and protocols.