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The Development and Importance of Stablecoins in the Crypto Market
About trading and investing in cryptocurrencies
In recent years, stablecoins have emerged in the financial scene. Stablecoins differ from other cryptocurrencies in their stability and multiple other advantages. In 2023, stablecoins represent more than 13% of the market value of all cryptocurrencies, which is far from being neglected or ignored, especially since this number is continually increasing.
In this article, we will provide a detailed explanation of stablecoins and discuss their advantages and disadvantages, as well as their prospects.
What are Stablecoins?
Types and Categories of Stablecoins
The Importance of Stablecoins
Advantages of Stablecoins
Disadvantages of Stablecoins
The Future of Stablecoins
Regulation of Stablecoins
Frequently Asked Questions about Stablecoins
What are Stablecoins?
Stablecoins are a category and type of cryptocurrency, aimed at reproducing and representing the diversity of other financial assets (currencies, precious metals, etc.).
In simple terms, stablecoins are stable cryptocurrencies based on blockchain that allow for the advantages of both cryptocurrencies (digital, speed, and decentralization) and traditional assets with lower volatility (dollars, gold...). Stablecoins make it possible to reconcile traditional currencies with virtual currencies.
By mid-2023, stablecoins constitute more than 13% of the entire crypto market.
It is worth noting that a stablecoin pegged at 100% to the dollar (1 to 1) will ensure stable purchasing power and price at exactly 1 dollar. The most widely used stablecoin so far is Tether (USDT), which was launched in 2014 by Tether Limited, based in Hong Kong.
Stablecoins are somewhat akin to banknotes in the 18th century and garner significant interest from central banks. It can be said that stablecoins are an abstract form of money, a kind of technological adaptation of money.
Types and Categories of Stablecoins
There are three main categories of stablecoins:
Stablecoins based on traditional currencies such as the dollar or euro (Tether, USDC, TUSD).
Commodity-backed stablecoins (Tether Gold, PAX Gold...).
Stablecoins based on other cryptocurrencies (DAI...).
The Importance of Stablecoins
Cryptocurrencies are among the most speculative assets. In cases of extreme volatility, the price differences of Bitcoin can fluctuate rapidly, rising or falling by several tens of percent in a single day. The instability of major cryptocurrencies remains a vulnerability, as the market is highly sensitive to the overall condition of the financial system.
There is indeed a close link between liquidity, volatility, and crypto assets. Therefore, stablecoins should be based on blockchain and traditional assets to ensure extremely low volatility. Thus, the benefits of stablecoins can be divided into two main parts:
Ensuring liquidity and low volatility in the portfolio.
Enjoy flexibility in usage (transaction speed, security, etc.).
Stablecoins are particularly useful depending on the overall market context. In fact, stablecoins are very useful especially during corrections in the cryptocurrency market. Trading with exposure to stablecoins makes it possible to improve portfolio performance.
Moreover, exposure to stablecoins allows for the advantages of blockchain while being exposed to currency markets (dollars, euros) and precious metals, for example. Thus, it is an implicit way to diversify a crypto asset portfolio and speculate on asset movements outside the cryptocurrency market (exchange rates, commodities, etc.).
$USDC $USD1 $USDP #USTD #USDC✅ #USDCstablecoin #USDC #USDC/USDT
