Stablecoins: A Safer Option in the Volatile Crypto Market?

Over the years, one of the things in the digital space that have gained massive attention and growth is the world of the crypto space and it has given access to a lot of innovation beyond what we can ever think of. So much potential that the crypto space offer and one of the things that make it to stand out is the transparency. But even with those potentials, it comes with its own drawback and that it the high Volatility nature of the crypto space.

The Volatility nature of the crypto space have been capable of offering both the positive and the negative side because at the same time.ir can gives profit for investors and for sometimes, it can result to significant loss. There are some crypto tokens like bitcoin, Ethereum that offer a lot of price flunctuations which at times can actually discourage investors and majorly businesses that want a stable asset.

Image Source

And that is where the stablecoins come in. Come to think of it, what are stablecoins. Stablecoins are type of cryptocurrency that is designed to have a specific and stable value. We have stablecoins like the USDT which is always called the Tether, we have even the Steem back dollar which is the SBD, we have also DAI. All these stablecoins are designed to have a stable value.

Let me briefly talk about how stablecoins works in essential. Stablecoins are actually categorised on different classification. We have the fiat collaterised stablecoins, we have the crypto collaterised stablecoins and lastly we have the algorithic stablecoins. All this function differently and have their own peculiar features. For fiat collaterised stablecoins, we have examples like the USDT. For the crypto collateralized stablecoins, we have the DAI.

Image Source

Talking about the benefits that Stablecoins offer, they are actually enormous and should not be taken for granted. The first I will like to talk about is the fact that it helps to actually reduce something called Volatility. Earlier I talked about how the crypto space is affected greatly by volatility. But with stablecoins, it gives this stable value that goes to investors to overcome the volatility of nature and helps them to be a good choice for transactions.

The second one I will like to talk about is the Lower Transaction Costs. Unlike the other crypto, stablecoin in its own case is less expensive and in fact this is one of the reasons why it is mostly used in cross border transactions because it is cost effective. Not only that, stablecoins helps to facilitate the Decentralised Finance and helps it to be used for purposes like lending, borrowing and staking.

Even with those benefits attached to it, I will say there are risks and concerns that are associated with stablecoins. The first is the Regulatory risk. Most of the time, government and regulatory bodies affect the performance of stablecoins like USDT due to the fact that they are pegged to the country currency. This also increases the centralised risks of the stablecoins because most of the stablecoins are controlled by the centralised entities and which might go against the Decentralised nature of the blockchain technology generally.