In the often volatile cryptocurrency market, stability is important and valuable. Stablecoins offer the best of both worlds by combining the relative stability of traditional assets with the flexibility of crypto.
Digital assets like bitcoin and ether offer many benefits, including decentralization, no-intermediary transactions, and more. However, one of the main drawbacks of cryptocurrencies is that many of these assets are highly volatile, meaning their prices are harder to predict and tend to fluctuate significantly. While the exact mechanics vary from coin to coin, reserve-backed stablecoins are designed to be somewhat resistant to such volatility, so you won’t see significant price swings against the underlying asset.
In this article, we will discuss in-depth what stablecoins are, their importance, benefits, and use cases in the crypto space.
What is Stablecoin?
Stablecoins are a class of cryptocurrencies designed to offer price stability relative to a reference asset. The value of a stablecoin is fixed, or “pegged” – through various mechanisms, depending on the design of each stablecoin – to the value of a “stable” reserve asset such as the US dollar, euro, or gold. In essence, a stablecoin is a digital asset that exists on a blockchain while maintaining the same value as the currency or commodity it tracks.
For both beginners and experienced traders, the stable and certain nature of backed stablecoins makes them a good asset to hold or invest in, especially during sluggish market seasons.
Why Are Stablecoins Useful?
1. Stability in volatile markets: Stablecoins provide the same value to crypto investors and traders that fiat currencies provide to participants in traditional markets: price stability. For example, while traditional investors might choose to allocate part of their portfolio to cash or government bonds during times of high volatility, crypto investors can turn to fiat- or gold-backed stablecoins.
2. Efficiency to stay in crypto: Crypto investors and traders often turn to backed stablecoins during volatile market conditions. Leveraging stablecoins allows funds to remain within the cryptocurrency market, as users do not need to cash out to fiat every time they want to maintain the value of their funds amid volatility or lock in profits.
3. Digital alternative to traditional savings: Stablecoins are gaining popularity as a method of storing and trading value in the crypto economy. Instead of keeping their dollar or euro savings in a traditional bank account, users can buy stablecoins with their local currency on Binance and subscribe to Earn.
4. Easy and fast asset transfer: You don't need a bank account to store stablecoins, and stablecoins are easy to transfer with fast processing times and low transaction fees.
5. Flexibility: With options like Flexible Savings and Recurring Purchases, you can customize your investment strategy to suit your financial goals and risk tolerance.
6. Accessibility: Binance’s user-friendly platform makes it easy to purchase stablecoins and access a variety of earning products, even for those new to cryptocurrency investing. Earn Passive Income using Stablecoins on Binance
Here are the steps for passive income using stablecoins on Binance
• Buying Stablecoins
To get started, you can buy stablecoins like USDT, USDC, First Digital USD (FDUSD), and Eurite (EURI) directly on Binance’s “Buy Crypto” page. These stablecoins are pegged to fiat currencies, providing a reliable way to preserve value. For example, USDT USDC and FDUSD are pegged to the US Dollar, while EURI is pegged to the Euro.
• Invest through Binance Earn
Once you acquire stablecoins, Binance Earn offers a variety of products to help you earn compound interest:
- Flexible Savings: This option allows you to earn interest on your stablecoins with the flexibility to withdraw your funds at any time. This is ideal for those who prefer liquidity while still earning passive income.
- Locked Savings: By holding your stablecoins for a certain period of time, you can enjoy higher interest rates compared to flexible savings.
- Staking: Binance also offers a staking option for certain stablecoins, which allows you to earn rewards by participating in the network's consensus mechanism.
You can deposit your USDT FDUSD and USDC tokens on this Binane Earn product to earn attractive returns. Binance offers various APRs based on the time period you want to lock your stablecoins.
• Recurring Purchases and Dollar-Cost Averaging (DCA)
To build your portfolio gradually, Binance’s Recurring Buy feature allows you to schedule stablecoin purchases at regular intervals. This approach is in line with the Dollar-Cost Averaging (DCA) strategy, where you invest a fixed amount at regular intervals, regardless of market conditions. DCA helps mitigate the impact of market volatility and reduces the risk of making large investments during market peaks.