It has happened with a lot of us that whenever we feel that there is even a 1% chance that we will face losses from our invested money, we opt out of that investment, or sometimes we do not invest. I am talking about 1%, but cryptocurrencies can land you into a loss of 200%, which is more than what you have invested. You will certainly consider not even thinking about putting your money into that investment in this case. But if there is a stable and hardly volatile cryptocurrency, then it is viable for you to invest in it. This type of cryptocurrency exists and is known as Stable Coins.
Stable coins are a cryptocurrency that offers you stability and are backed by assets in the real world. As the name suggests, they offer a stable valuation. Just as when the barter system was demolished with the coming of money, likewise risk is also demolished with the coming of stable coins. The returns offered by bitcoin attract many people, but they are not up for risk tolerance. At times, some investors enter the market at the wrong time, as when the demand for bitcoins is already high, and they want a quick exit from there into something stable-so the investors go for Stable coins in such a scenario.
There are four different types of stable coins, which are as follows:
1. Fiat collateralized stable coins
A fiat currency reserve backs this type of stable coins. The reserves are audited regularly to ensure compliance. If a stable coin is backed by the US dollar (i.e., a fiat currency), each stable coin equals $1. The issuer issued $4 million stable coins, which means that 4 million stable coins can be exchanged for it. One of the examples of Fiat collateralized stable coin is Tether.
2. Off-chain stable coins
These types of stable coins are collaterals that are backed by securities or commodities. The investments can be redeemed anytime by the investor. The most popular commodity/security which is held as collateral is gold. Two of the most common liquid gold-backed stable coins are-XAUT and PAXG
3. Algorithm (Non collateralized) stable coins
As the name itself suggests, there comes an algorithm to maintain the price of a stable coin. If the demand is falling, and the prices of the stable coming are falling as well, then as per the algorithm of this stable coin, it reduces the number of tokens, thereby increasing demand and price and vice versa. This type is stable coin is not backed by any collateral. One of the known Algorithms for Stable coins is NuBits.
4. Crypto collateralized stable coins
These types of stable coins have backed Wby another asset as their collateral. The collateral here is mostly any cryptocurrency other than Crypto backed stable coins. Because the nature of cryptocurrency is highly volatile, many cryptocurrency tokens are required to back the stable coin. For issuers to issue $500 stable coins, $1000 worth of cryptocurrency has to be kept reserve for backing the stable coins.
Talking about how the stable coins can be bought?
They can be bought in the same way other cryptocurrencies are bought. There are numerous cryptocurrency exchange platforms where stable coins can be traded easily. One of them is Like this trading bot, where you can buy and sell stable coins.
Stable coins are very much under the eye of regulators. So if you are somebody who is not willing to take a lot of risks or any risk at all and still want to invest in cryptocurrency, then a stable coin is the option for you. They are a call for all the beginner crypto investors who are unwilling to take many risks.
There are times when you get mentally drained because the crypto market never sleeps. One night you sleep, and the other day as soon as you wake up, you see a completely different scenario in the Crypto Market. It is unlike the stock market. So the better way is to put your money in stable coins.