It is no news that digital currencies are gradually taking over the world. You can barely go a day without beating words like cryptocurrency, Bitcoin, Etherum, or some other coin.
Cryptocurrencies are more than a big deal now and more coins are coming up.
In this guide, you will learn all the basic things you need to know about a type of cryptocurrency called Stablecoin. You’ll learn what it is, how it is used, how to make stablecoins, how to make money with stablecoins, and other things.
What Are Stablecoins?
Sure, you must be wondering, “what is a crypto stable coin?”
To put it easily, Stablecoins are a new type of digital currency that has its market value attached to an external reference or another asset. These coins were made to imitate the value of government-issued currencies like the USD, yen, euro, etc.
The value of these coins oftentimes is expressed in dollars and with Stablecoins, you can greatly mitigate risks that can arise from market fluctuations.
Stablecoins cryptocurrency perform the functions of digital assets and traditional currencies; they can be used to perform payment transactions. These coins are fast-rising because they don’t possess something the top cryptocurrencies possess; volatility.
Stablecoins are much more stable than other digital currencies because their values are tied to actual assets with fixed values while the values of other cryptos like Bitcoin are always based on speculations. These coins also perform their transactions and processing using Blockchain technology.
Types of Stablecoins
There are so many types of stable coins around, but they can be categorized by their working mechanisms which will be explained next.
However, the four major types of Stablecoins are:
- Commodity-collateralized stablecoins e.g. Tiberius coin.
- Fiat-collateralized stablecoins e.g, Tether USD.
- Algorithmic stablecoins e.g. Basis.
- Cryptocurrency-collateralized stable coins e.g. DAI
How Do Stablecoins Work?
Just like their names say, stablecoins are the only coins for now that have been made to achieve a constant value with time. Each working mechanism is dependent on the type of coin it is.
Their working methods are given below:
Commodity-Collateralized Stablecoins
These stablecoins make use of physical interchangeable assets or real estate as collateral. The most common assets usually used for these transactions are precious metals, precious stones (gold, silver, diamonds, etc), oil, natural gas, and things of such worth that have the potential of appreciating with time.
Fiat-Collateralized Stablecoins
These are the most popular types of stable cryptocurrency coins and they are backed by government-issued currencies like USD, GRB, etc. These types of stablecoins are valued at a 1:1 ratio with the currencies; 1 stablecoin is equal to 1 unit of currency. This means that for every stable crypto coin you have, there is an equivalent fiat currency held for you in collateral.
Algorithmic Stablecoins
These are also known as “non-collateralized stablecoins.” These coins are not backed by any digital assets or government-issued currencies. Instead, they are backed by algorithms and smart contracts. Smart contracts are in charge of managing the supply of all issued tokens and guaranteeing that the coin price is stable.
Cryptocurrency-Collateralized Stablecoins
These stablecoins are cryptocurrencies used as collateral. These types of coins have a 1:2 ratio with cryptocurrencies.
1 unit of stablecoin crypto is equal to 2 units of crypto. This is because cryptocurrencies are very volatile and the prices can drop at any point hence, a larger number has to be held per stable coin so as not to incur much loss.
What Can We Do with Stablecoins?
You might be wondering, “what are stablecoins used for, what can we use them to do, really?”
There are a lot of things we can do with stable crypto coins but below are four major profitable things you could do with your coins:
- Buy Cryptocurrencies
It’s no news that buying and selling crypto is a nice way to improve your finances. To thrive in the crypto world, you have to possess an exchange medium that permits you to trade the currencies easily. Using stablecoin crypto, you have a stable coin that is more grounded and less volatile than its counterpart.
- Make Payments
With the use of stable cryptocurrency coins, you can perform financial transactions easily and make your purchases with no fuss. It eliminates the need for a third party and you can pay any amount, no matter how large.
Using this coin, you have no need for physical cash or to visit a traditional financial institution to make any payment.
- Investment and Hedging
This is one of the best things you can do with your stablecoin today. Because these coins are pretty stable and have low volatility, people have more confidence in investing in them. With stablecoins, investors have leverage against risky bets.
These coins are tied to fiat currencies which makes them a preferred choice because you have an investment on both sides. In case a loss occurs, it will not be catastrophic.
- Have Global Advantage
With stable crypto, you can make transactions with any vendor in the world. Currency is not an issue because you can pay vendors in tokens which they, in turn, can convert to their currency. All these transactions can be performed without the hassle of going to a traditional financial institution.
How To Make First Profit Using Stablecoins?
There are many ways to make money using stablecoins cryptocurrency, but a guaranteed way to make your first profit is by staking your coins. Staking is when you buy coins and hold them in an account where they can gain interest known as APR or APY. It’s like storing your cash in a savings account.
While staking, you can also borrow other users some stablecoins and collect them back with juicy interest rates.
How To Earn More Using Stablecoins?
Here are some great ways you can earn more money using Stablecoins:
- Holding: Unlike fiat-backed stable coins like Tether USD (USDT), when you buy commodity-backed stable crypto coins and hold them, you can turn on a huge profit if you buy low and sell high. This usually works for stable coins that are backed up by physical assets like gold. A perfect example of such precious metal-backed crypto is Perth Mint Gold Token (PMGT).
- Day trading: Trading stable cryptocurrency coins is a good way to earn money because you can make a profit if you sell your coin at a higher price than when you got it. But you would have to study the market constantly to excel at this.
- Arbitrage: This is somewhat like trading. But, you buy an asset from one market and sell it in another for a profit.
- Charging fees for trading: You can charge trading fees if you are helping other individuals trade. This is an easy way to make money if crypto trading is what you do for a living.
- Lending investors coins for short-term use: You can lend investors some of your coins for a while and then collect them back with interest when refund time comes.
Real-World Applications of Stablecoins
Some real-world applications of stable crypto coins are:
- They are used as a day-to-day currency.
- They are used as reliable and affordable remittances for workers.
- They are used to perform immediate, worldwide transactions.
- They are used to improve the exchange of cryptocurrencies.
- They are used to mitigate the risks of national market crashes.
How To Monitor Stablecoin Metrics Using CoinSocialStory
With the remarkable volatility of crypto assets, it’s always best to follow the trends on each cryptocurrency as they happen in real-time. A reliable way to monitor stablecoin metrics like its volume, Twitter mentions, and so on and not miss any news is by using CoinSocialStory.
Head over to our website here and select the stable coin(s) you wish to monitor. You can track your selected crypto coin and also analyze each one with the provided live charts.