ᐅ what is a stablecoin? ⚡ stability in cryptocurrency

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Stablecoin - What Is It in Cryptocurrencies?

Stablecoin - What Is It in Cryptocurrencies?

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A stablecoin is a digital coin whose value is pegged to another asset. Most often, this asset is the dollar. For example, the first and still most popular stablecoin, USD Tether (USDT), as evident from its name, is pegged to the American currency - meaning 1 USDT is worth 1 dollar. There are also stablecoins pegged to other fiat currencies, precious metals, or other assets.

Stablecoins are designed to make cryptocurrency transactions more understandable and provide a benchmark that's easy to navigate. Moreover, they ensure stability, as high volatility is one of the main problems with cryptocurrencies. Their exchange rates can rise or fall dramatically in a matter of days, which doesn't contribute to an investor's peace of mind and can be shocking for those who previously traded in traditional markets.

When the market is hit by a storm, stablecoins can serve as a safe haven where one can easily "take shelter" by converting their capital from Bitcoin and altcoins. When everything calms down, one can start buying cryptocurrency again. A stablecoin doesn't guarantee 100% reliability, and even its rate can fluctuate slightly, but if it's backed by a sufficiently serious organization, one can be confident that it will soon stabilize.

Another significant function of stablecoins is that they serve as an entry point for large capital. It's more convenient to first convert fiat money into stablecoins, and then gradually start investing them in various cryptocurrencies.

With the wider adoption of cryptocurrency, stablecoins may acquire another important function - in countries where local currencies are rapidly losing value, they could be used for transactions. Currently, the dollar often serves this function, but if it's replaced by stablecoins pegged to natural resources, it could make the situation in such countries more stable - at least according to some economists.

Stablecoins are important for cryptocurrency as a link that facilitates its wider application, and over time, they may gain considerable importance for the entire global economy.