Stablecoins are one of the best ways for cryptocurrency enthusiasts to minimize the effect of volatile price levels on their alt-coin portfolios. If you’re interested in learning the meaning of the term stablecoin and are willing to follow a few basic rules about buying and selling these intangible assets, it’s possible to improve your crypto portfolio in both the short and long term. Step one is learning how stablecoins work in general terms. The concept is not that complex, but there are a few wrinkles that everyone should understand.
Why do people use these pegged, stable alt-coins? There are many reasons, and it’s essential to become familiar with at least the top three. Finally, after you get comfortable with the concept of what a stablecoin is and why people invest in them, it’s time to dive into the marketplace and get started. There are three primary ways to do that, including staking, lending, and earning flat interest. Here’s the least you need to know before getting involved in stablecoins as an investor or trader.
How Stablecoins Work
Stablecoins are a special kind of cryptocurrency that was created on the blockchain but contained certain provisions that allowed them to be pegged to fiat or official government currencies. Some, for example, are pegged to the US dollar, while others are connected to major non-US currencies. What’s the big deal? SCs are a good way to utilize disposable income and a great entry point into the crypto space for investors who don’t want to endure the volatility of the niche. They either hold them exclusively or combine stablecoin assets with coins like Ethereum and others.
Why Traders Use Them
Why do investors and traders use stablecoins instead of or alongside ordinary cryptocurrencies? The single most common reason is related to volatility. All you need to do is view a bitcoin or Ethereum price chart to get a sense of the roller coaster behavior of those two coins’ prices. However, when you learn how cryptos are traded, you can leverage the stability of stablecoins to balance out your portfolio and dampen down a large amount of the price swings. In short, there are three ways to earn a return on stables, namely through ordinary account interest, through staking, and by becoming a lender.
In the same way, people can stake their favorite cryptocurrencies for annual returns. They can stake stablecoins and earn interest. In most cases, the rates are somewhere between five and ten percent, much higher than traditional banks pay. Relatively speaking, leaving your stablecoin assets in an online account to earn staking rewards is a comparatively good deal considering the options.
Be a Lender
Many crypto platforms allow users to lend their balances to others and earn interest that way. In a process that’s much different than staking, lending your crypto directly from the currency’s platform is a new twist on a traditional technique. This can be one of the smart money moves to make depending on your risk tolerance. What you earn changes from day to day, but it is possible to lock in a fixed rate on particular loan agreements in which you act as the lender.