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What are Stablecoins? All things investors need to know about them

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In a volatile crypto market, Stablecoin promises to be an important link connecting the electronic market with the traditional financial market. So what are Stablecoins? Should you invest in Stablecoins or not? Learn all about Stablecoins in the article below of 5ROI Global!

What are stablecoins?

Stablecoins are cryptocurrencies whose values are tied to those real-world assets such as the U.S. dollar. If cryptocurrencies fluctuate every day, stablecoins ensure a stable price because they aren’t dependent on any central bank.

Why are Stablecoins important in Crypto?

Stablecoins are the bridge between the cryptocurrency market and the traditional financial market. It solves the volatility – the biggest problem of the current Crypto market. Investors can now freely transfer assets to stablecoins instead of Fiat to avoid the volatility of the crypto market.

How do stablecoins work?

Fiat-backed stablecoins

You can use your dollars (or other fiat currency) to buy stablecoins that you can redeem later for your original currency. Unlike other cryptos which have drastically fluctuated value, fiat-backed stablecoins aim to have very small price fluctuations. 

Crypto-backed stablecoins

Cryptocurrency-backed stablecoins are backed by other cryptocurrencies. A crypto-backed stablecoin can be issued to launch one asset on a different blockchain. For example, Wrapped Bitcoin (WBTC) is backed by Bitcoin issued on the Ethereum blockchain.

Cryptocurrency-backed stablecoins are a more decentralized version of fiat-backed stablecoins, as they can be created through the use of automated smart contracts with no central entity controlling them.

Precious metal-backed stablecoins 

Precious metal-backed stablecoins use gold and other precious metals to maintain their values. These stablecoins are centralized, which protects them from crypto volatility. Gold has long been seen as a hedge against stock market volatility and inflation, making it an attractive addition to portfolios in fluctuating markets.

Should you invest in Stablecoins?

Currently, Stablecoins are widely used on cryptocurrency exchanges, helping investors quickly take advantage of new market opportunities. Besides, traders also use stablecoins for easy payments and transfers around the world or generate passive income through stakes in the Defi ecosystem.

While stablecoins are an extremely versatile tool, they are still relatively new with a limited track record and unknown risks and should be invested in with caution. Therefore, investors should consider carefully before making decisions. And don’t forget to update the latest market information on 5ROI Global!

Risk Disclaimer:

For investors, trading digital assets are both an opportunity and a challenge with outstanding profit potential. 5ROI Global only provides useful information for investors to grasp, and refer to and does not provide financial investment advice of any kind.

5ROI Global

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