Stable Coins Explained
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Since the crypto boom in 2017, stable coins have arguably been the most impactful and essential project in the crypto space. Stable coins provide a simple solution for traders - stability in this fickle market. Traders need an opportunity to store their profits in a crypto coin that will hold the same value as their gains.
Many exchanges do not have fiat currencies like the USD as a quote currency. They need an equivalent digital currency that stays the same in value to the USD. In response to this need, stable coins were created.
What are stable coins?
A stable coin is a crypto coin that is pegged to a stable asset, such as oil or fiat currency. Although stable coins can be pegged to other commodities and even to other cryptocurrencies, the US dollar remained to be the most popular stable asset coins pegged to.
For many cryptocurrency traders, stable coins like Tether or GUSD have played as lifelines to exit trades, take profit, or avoid market crashes and losing everything.
For example, if a trader buys Bitcoin and doesn't want to risk the price of Bitcoin falling against the US dollar, he or she can exchange their BTC for a stable coin like USDT, which retains the dollar value. Once the trader is ready to get back into the market and buy into Bitcoin or any other crypto coin like ETH, he or she can exchange their USDT back to BTC. This way of trading is extremely popular with crypto exchanges.
However, traders who consider themselves to be crypto fanatics will look at stable coins as nothing more than an acknowledgement of the need to rely on fiat money as a source of stability.
Popular Stablecoins used by traders
USDT (USD Tether) – This stable coin is by far the most popular. It is a fiat collateralized stable coin that is pegged to the US dollar. The coin was generated by Tether and has remained relatively stable since its introduction in 2015
GUSD (Gemini USD) – A fiat collateralized stable coin issued by the popular crypto exchange Gemini, which was established by the Winklevoss brothers.
TUSD (TrueUSD) – is a USD-backed ERC20 stable coin that is fully collateralized by US dollars held in escrow by banks.
USDC (USD Coin) – A fiat collateralized stable coin issued by Circle and Coinbase.
Stable coins are a vital part of a trader’s strategy. They are allowing traders to have an out if the market is volatile. In reading this blog, I hope you have some understanding of what Stablecoins are and how they work. If you have any questions, please comment below!
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