Stablecoins help investors manage the volatility that exists in the cryptocurrency markets.
Investors that are interested in cryptocurrencies but scared by the volatility can consider checking out stablecoins.
Although Bitcoin and Ethereum have disputed the interaction and thoughts of many investors about money, traditional investors may decide to stay away because prices change drastically every time.
Stablecoins are less prone to volatility. They are cryptocurrencies that are backed by an asset, usually a fiat currency. They also enable investors to have access to new and evolving digital assets.
What Are Stablecoins?
Stablecoins are digital currencies that are linked to a specific asset like a national currency or a precious metal (such as gold). We have stablecoins that are backed by fiat currencies, cryptocurrencies, and commodities.
Cryptocurrencies evolve rapidly in an economy that is driven by technology. Thus, they are very volatile, thereby making their value change within seconds.
Since stablecoins are pegged to a more stable asset (such as the USD), they were created to help manage price changes that are seen in Bitcoin and other cryptos.
Unlike cryptocurrencies, stablecoins are less influenced by the conditions of the market.
How To Make Money With Stablecoins
You can earn interest on your stablecoins by opening an account with a cryptocurrency exchange and earning daily interest on your holdings. Most of these exchanges have low fees and do not require any minimum balance.
When you invest in a stablecoin that is backed by a precious metal, for instance, gold, it’s like investing in gold. If gold increases in value, the value of the digital asset will also increase.
However, this scenario is not true for stablecoins backed by fiat currency. The U.S. Dollar or Euro is designed to have a stable value and not change in price. Thus, a stablecoin backed by a fiat currency will not experience any change in its value over time.
Lending Your Stablecoins
According to Tom Pageler, the CEO of Prime trust; a blockchain-driven trust company that provides financial infrastructure services to fintech innovators, “Crypto lending is an alternative investment form where investors lend fiat money or cryptocurrencies to other borrowers in exchange for interest payments.”
According to him, the rate of return can be between 5% and 12% annual percentage yield. Also, the yield can be paid out in the coin that you lent out to borrowers. For instance, you will get your yield in Bitcoin if you lend Bitcoin.
Staking Your Stablecoins
Staking refers to the process of taking part in maintaining the flow of the blockchain network on a particular asset. You will then be compensated by earning income from the blockchain network. Staking is like locking your cryptocurrency to receive rewards.
This process is synonymous with keeping money in your savings account.
Ethereum 2.0, Algorand, and Tezos amongst others are some of the cryptocurrencies that you can earn staking rewards from on different exchanges.
Stablecoins are asset classes that investors can also consider. A major way of using them is for making quick and cheap payments or transferring money globally. They offer a fast way of transferring deposits or carrying out withdrawals between fiat currencies to crypto exchanges.
You can use stablecoins to send money anywhere in the world within some seconds; thereby making it easy and simple for businesses to send money to their employees securely.