What is a stablecoin in simple terms.

Cryptocurrency is becoming a real opportunity to earn on investments. The Time when such coins were viewed skeptically has long passed, although even today, with a complete understanding of the system, it is not easy to make money.

When delving into the complex terminology of cryptocurrency (what it is for each process), it is worth immediately paying attention to what a stablecoin is. Despite the rather complicated name, understanding what this process is not so difficult.

What is a stablecoin in simple words?

So, what is a stablecoin: it is a type of cryptocurrency designed to minimize the volatility of its value. Unlike other cryptocurrencies like Bitcoin or Ethereum, the price of a stablecoin is tied to the value of a more stable asset, such as fiat currency (e.g., US dollar), a commodity (e.g., gold), or even another cryptocurrency.

In other words, a stablecoin is a kind of hybrid between cryptocurrency and classic currency. In simple terms, any crypto differs from regular currency in that its guarantee is backed by blockchains. That is, they cannot be conditionally seen. A stablecoin received its name also because its guarantee is created by real currency. For example, the dollar.

For example, one stablecoin can always be equal to one dollar. This is done to avoid sharp changes in price, which often occur with other cryptocurrencies like Bitcoin. But again, such a peg is not the classic guarantee that everyone expects. In this case, the peg is needed for rate fluctuations.

Stablecoins are usually tied to real money, such as dollars or euros, which makes them more stable and convenient for use in everyday life. For example, if you have a stablecoin tied to the dollar, its value will not fluctuate sharply, and you can use it to buy goods or services, knowing that its price will not change the next day.

Such a currency has many more advantages, especially for those investors who have just started searching for and investing in crypto.

A few words should be said about the main characteristics of stablecoins:

1. Stability.

2. Asset backing. Most stablecoins are backed by reserves in fiat currencies such as the US dollar or other assets. For example, Tether (USDT) and USD Coin (USDC) are tied to the dollar.

3. Stablecoins are widely used in cryptocurrency trading to facilitate trading and as a means of preserving value in conditions of high market volatility.

Every experienced investor knows the advantages of stablecoins. For example, the most famous coins of this type are USDT (Tether). They are among the most popular stablecoins tied to the US dollar. They also have a competitor in the form of USDC (USD Coin), which is also backed by reserves in US dollars.

Advantages and disadvantages of stablecoins

Like any coin in the world of cryptocurrency, stablecoins have their strengths and weaknesses. Speaking of advantages, they are:

1. Low volatility. Unlike regular cryptocurrencies, stablecoins have a stable price, making them convenient for everyday use and transactions.

2. Convenient transfer. Transferring stablecoins through blockchain occurs quickly and with low fees, especially compared to traditional bank transfers.

However, these coins can create quite a few risks. Therefore, a newcomer shouldn't immediately jump into investing in the "ideal currency". If a stablecoin is backed by a centralized asset, there is a risk that the issuer may not have sufficient reserves to cover all issued coins. And such a risk, in light of recent events, does not seem so rare. Also, stablecoins may face regulatory restrictions from government authorities, which can affect their use and acceptance.

In general, if we weigh all the pros and cons, stablecoins play an important role in the cryptocurrency ecosystem, providing users with a more stable alternative to other crypto assets. When it comes to the benefits of such currency, each stablecoin may have its peculiarities, so it is important to thoroughly study their backing and risks before use.

To understand how necessary such coins are, one must understand the scope of their application:

1. Trading and exchange. Cross-trading: stablecoins are often used as an intermediate currency for trading on cryptocurrency exchanges. You can exchange other cryptocurrencies for stablecoins to avoid volatility.

2. Storing funds. Use stablecoins for storing funds if you want to preserve their value without significant fluctuations. This is especially useful in periods of high volatility in the cryptocurrency market.

Stablecoins can also be used for payments and international transfers, thanks to their stability and accessibility.