What is a stablecoin?

For Beginners

What is a stablecoin?

Stablecoins are a type of cryptocurrency, whose market value is always equivalent to the value of some other asset. There are several types of assets that can be a foundation for a stablecoin. They’ve grown in popularity in recent years. There are several good reasons for it.

No matter how you look at them, most stablecoins are a more predictable, secure type of crypto than regular cryptocurrencies, which are known for their volatility and general risk. At the same time, stablecoins enjoy the same technical advantages as other crypto coins.

Advantages of Stablecoins

Stablecoins aren’t great for price speculation, like Bitcoin or Ethereum. However, it’s great for storing value. Some of these currencies have been at the same price marker since their creation. So, if you want to hold your money in a type of currency that won’t succumb to volatility and still enjoy the decentralized infrastructure, get stablecoins.

The main benefits are:

  • Incredibly stable market value, hence the name;
  • Increased liquidity and exceptional popularity;
  • Transparency, security, and speed of transactions, like with other cryptocurrencies;
  • Ease of purchase and sale.

The most common type of stablecoin is the Tether USDT, which is basically a digital dollar sold at 1:1 to the American dollar for the last 9 years. It’s the third-most-popular crypto in the world. It’s available in virtually every substantial wallet and exchange, and it never failed.

Popular Stablecoins

After Tether came out in 2014, thousands more stablecoins were introduced into the free market. However, there are only three significantly popular cryptocurrencies, and all of them are USD-backed.

  • Tether (USDT)

The most popular stablecoin, Tether USDT is the original one. It’s backed by a variety of dollar-reliant assets, making it an incredibly secure investment. The issuer, Tether Co, has a plethora of other stablecoins for the euro, yuan, gold, and even some American indexes.

  • USD Coin (USDC)

USD Coin is another USD-aligned stablecoin sold at the market value of the American dollar. It’s the second-biggest asset of this sort, and fourth-biggest on the market overall. The big difference of this asset against USDT is its increased transparency, which makes it somewhat more secure.

  • Dai (DAI)

Dai is the smallest of the trio of major USD stablecoins. It’s as stable as the others, although it’s not backed directly by the dollar. Instead, the issuer holds a large portfolio of cryptocurrencies, which ensures that Dai is always on the same price level. Whether it’s more secure or not, only time will tell.

What Makes a Stablecoin?

A big thing about stablecoins is that everyone knows that these currencies are backed by actually solid assets, most of the time. The major problem with decentralized money, as you might’ve heard, is that nothing really holds its value besides the will of the millions of crypto enthusiasts to continue using these.

Stablecoins are issued by individual companies. The way they peg these coins to the price of some asset, not necessarily USD, is by holding a large number of the underlying asset, or other assets that also depend on that asset, in storage. Both USDT and USDC, for instance, have large quantities of USD, USD-derived bonds and funds, backing them up.

As such, there are several types of stablecoins:

  • Fiat-collateralized coins. These coins are mainly backed by a large quantity of fiat currency, such as the American dollar or euro.
  • Crypto-collateralized coins. There are also stablecoins, like Wrapped Bitcoin, pegged to the value of certain crypto coins but with other characteristics. WBTC, for instance, is used on the Ethereum blockchain but corresponds to the value of BTC. Since BTC is way more volatile than USD, the peg is usually not a 1:1, but close.
  • Commodity-backed coins. The most prominent variety of such stablecoins is gold-backed coins, like Tether Gold or Pax Gold. Other precious metals and even oil are also represented.

Stablecoins on CoinDepo

The CoinDepo platform supports major stablecoins such as Tether USD (USDT), USD Coin (USDC), and DAI. With CoinDepo, you can safely store your stablecoins in Compound Interest Accounts and earn from 18% to 24% per annum + compound interest, depending on the type of interest account you choose. Today, without exaggeration, this is the best offer on the market. 

You can also borrow major cryptocurrencies from CoinDepo against your stablecoin portfolio without opening a collateral account, which is a unique service that has no analogs in the world of digital assets.

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