Discover the benefits of Stablecoins — A new way to store value

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If you’re new to the world of cryptocurrencies, you may have heard the term “stablecoin” being used. So, what exactly are stablecoins?

A stablecoin is a type of cryptocurrency that is designed to maintain a stable value. Unlike other cryptocurrencies, such as Bitcoin or Ethereum, which can be volatile and experience large fluctuations in price, stablecoins are pegged to a stable asset, such as the US dollar, the euro, or gold.

Stablecoins have become increasingly popular in recent years due to their stability, which makes them ideal for use in transactions and as a store of value. They offer the advantages of cryptocurrencies, such as fast and secure transactions, without the volatility that can make other cryptocurrencies difficult to use. We at Coinfella recommends that you use stablecoins for your payments as well.

There are several types of stablecoins, including:

1. Fiat-collateralized stablecoins: These stablecoins are backed by fiat currencies, such as the US dollar or the euro. The issuer of the stablecoin holds a reserve of the fiat currency, and issues the stablecoin on a one-to-one basis, with each stablecoin representing one unit of the reserve currency. Examples: USDT, USDC BUSD.
2. Crypto-collateralized stablecoins: These stablecoins are backed by other cryptocurrencies, such as Bitcoin or Ethereum. The issuer of the stablecoin holds a reserve of the cryptocurrency, and issues the stablecoin on a one-to-one basis, with each stablecoin representing one unit of the reserve cryptocurrency. Examples: DAI.
3. Non-collateralized stablecoins: These stablecoins are not backed by any asset, but instead rely on algorithms to maintain their stability. The value of the stablecoin is maintained by adjusting the supply of the stablecoin based on market demand. Examples: USDD, FEI.

Now let’s talk about why you should use stablecoins to do your payments or to transfer value.

1. Stability: As mentioned earlier, stablecoins are designed to maintain a stable value, making them ideal for consumers and businesses who would like to use cryptocurrency as a currency, they protect you from aggressive price fluctuations other cryptocurrencies have, making them the an ideal option for daily transactions.
2. Speed and efficiency: Stablecoins can be transferred quickly and efficiently, just like other cryptocurrencies, without the delays and costs associated with traditional banking transactions. Ideal to transfer small or large amount of funds faster and more securely.
3. Accessibility: Stablecoins can be used by anyone, anywhere in the world, as long as they have access to the internet. They can also be exchanged into fiat currencies like USD or convert into another cryptocurrency, making it ideal for users to trade them for other digital assets or fiat currency.
4. Security: Stablecoins are often regulated by financial authorities, meaning they have to follow certain rules and regulations to ensure that they are stable and secure. For example, USDC is regulated by US government, and its reserves are regularly audited to ensure that it is fully backed by US dollars.

However, stablecoins are not without their risks. One major risk is that of depegging, where the value of the stablecoin falls below its pegged value. This can happen for a variety of reasons, including a lack of demand, or a failure of the underlying asset to maintain its value. One example of this is the UST stablecoin, which was pegged to the US dollar and was used on the Terra blockchain. In November 2021, UST depegged due to a liquidity crisis, this caused significant losses for those holding UST, and highlighted the risks of using stablecoins.

Stablecoins offer a stable and efficient way to transact and store value using cryptocurrencies. Whether you’re new to the world of cryptocurrencies or a seasoned investor, stablecoins are a valuable tool to have to do digital payments, and we at Coinfella recommends using stablecoins to do payments on our platform as well.

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