What Are Stablecoins?

Medium Juin 5, 2020

stablecoins
Key Takeaways:
– Most cryptocurrencies are highly volatile, meaning their value can change rapidly
– Stablecoins are designed to keep the same value as certain real-world assets
– Since their price remains the same, they could be interesting for trading or to those wanting financial freedom without the price swings of the general crypto market
– You can keep your stablecoins secure through your Ledger device and manage many of these directly through Ledger Live

Stablecoin: A non-volatile crypto asset

Cryptocurrencies are known for many reasons, including their decentralized nature of providing fast and low-cost international transfers. Another thing cryptocurrencies such as Bitcoin are well known for is their price volatility.

Sure enough the price of Bitcoin has gone from $1.000 to almost $20.000 in 2017 alone, after which it corrected all the way back to nearly $3.000 in 2018. While this volatility can be highly profitable for traders and hodlers, it could equally cause losses.

Stablecoins are quite different in this.

Unlike traditional crypto assets, stablecoins have their value pegged to a certain currency or commodity. By far, most stablecoins are pegged to the US Dollar. For example, the Tether US Dollar (USDT) is the biggest stablecoin in terms of market capitalization. 1 Tether USD tends to remain worth exactly 1 US dollar.

There’s also stablecoins that are pegged to the price of gold or the Euro. Since they are bound to the value of real-world assets, stablecoins remain mostly unaffected by any market swings in the general crypto market. Most of these coins actually run as a token on a different network – many of them being on the Ethereum blockchain as ERC20 tokens

Some stablecoins are backed 1 to 1 by whatever they are representing. For example, some issuers of stablecoins that are pegged to the US dollar would themselves reserve 1 dollar for each coin they have created.

Why Stablecoins?

There are several elements for which stablecoins can be interesting. Below we’ll list two potential reasons why someone might want to use stablecoins:

Trading

Firstly, for traders it can be of interest to change their cryptocurrencies into stablecoins if they expect prices to go down. By exchanging their potentially volatile crypto assets into stablecoins, the impact of prices plummeting would be limited in such a scenario. Afterwards, they could get a bigger number of crypto assets in return for their stablecoins.

Disclaimer: Trading can be risky and result in losses. We strongly recommend doing your own research and we don’t provide financial advice.

Financial Independence

Not everyone involved in the cryptosphere is interested in the risks the volatility could bring. There are those that want to enjoy the financial independence that crypto assets bring. This includes elements such as decentralization, being in charge of your own money and having complete freedom of choice with it without having to consider price swings. The risk that crypto’s price volatility brings isn’t there, since these stablecoins are basically digital versions of these real-life assets (e.g. US dollar, gold). For these people, stablecoins could be a great option.

Managing your Stablecoins Securely

As mentioned previously, most stablecoins operate on blockchains belonging to a different cryptocurrency. By far most of these are on the Ethereum network (being ERC20 tokens such as USDT, USDC, DAI or TrueUSD), but they can equally be found on others like the Tron blockchain (being TRC20 tokens). At all rates, it is important to keep your stablecoins secure and out of reach from anyone that would want to steal your hard earned money.

That’s where we come in.

At Ledger, our mission is to provide top notch security for your critical digital assets. Our hardware wallets keep the key to unlocking your crypto wealth offline, away from online hacks. It’d even be protected against a wide array of physical attacks against your hardware wallet, since Ledger uses cutting-edge Secure Element chips to keep the access to your crypto secure.

Not only do we provide security, but you can also manage a plethora of different stablecoins directly in our all-in-one software solution: Ledger Live

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