The crypto craze is still in full bloom, and while some may have lost their faith after one too many Bitcoin fluctuation, it seems that new players are on the rise. We all know how volatile this crypto world has proved to be, with the tendency to skyrocket or plummet in a matter of a few hours. This is perhaps one of the main reasons behind the creation of the latest, and hopefully the most reliable crypto solution to this issue. Know as stable coins, these cryptocurrencies are growing in popularity and more are surfacing as the response to the unstable nature of the original crypto idea.
Thanks to the famous Blockchain tech, we can safely say that the trend of developing new and hopefully smarter cryptocurrencies will not wane. However, understanding the potential, the trends, and the possible issues that may arise from this realm can help you make smarter investing decisions. Cryptocurrencies are not going anywhere, so if you’re interested in diversifying your investment portfolio, look no further than stable coins.
Defining the stable coin
The digital realm allows us to redefine the financial uses of a certain currency, and cryptocurrencies are trying to achieve precisely that: a simple, but effective combination of decentralization, stability, and diversity of use. However, creating such a utopian concept is far from easy. Enter: stable coins, our most fruitful attempt at this very noble goal. Stable coins, as the name suggests, are the cryptocurrencies that are linked to a stable value, whether that of the US dollar or the value of gold, or an underlying mechanism that drives the economy itself.
It’s important to note that this one quality doesn’t make them all the same, or equally valuable for an investor such as yourself. Based on how their stability is ensured, there are two key categories of stable coins that we can look at, even though they achieve a similar level of bottom-line stability. First, there are stable coins that are asset-backed, meaning that they are inextricably linked to an asset, such as a monetary one (the US dollar) that protect their stability. Then there are those supported by an algorithmic mechanism that helps match supply and demand to avoid extreme volatility.
Varieties in the market
In case you are new to the world of stable coins, it pays to know the most influential ones in the market, and to know the ones that have the highest potential to grow in value over time, and to retain their stability. For example, certain innovators such as Anchor AG have created stable coins that are linked to the Monetary Measurement Unit (or MMU for short) that reflects the true value of the global economy. That way, you can choose to invest in a stable crypto currency with several contingencies and pillars that ensure and protect its stability.
Then you have the USD-linked currencies the likes of Tether or TUSD that have been around for several years with little sign of drastic fluctuation. Of course, with over 2000 cryptocurrencies out there, stable coins are a growing market and will become better represented over the years to come, giving you plenty of opportunities to get to know the market.
The issue of regulation
In addition to covering the perks and potential of stable coins, it’s also prudent to discuss some of those most prevalent concerns with regard to these cryptocurrencies. We’ve already mentioned that stability is only one of several crucial factors that can make or break a currency, digital or otherwise. Even if you manage to provide incredible levels of stability, what about global regulations to make sure no foul play is involved and to prevent security issues such as scams?
Certain tech companies are trying to find a solution to these sorts of questions. Some of them, such as Elliptical focus on preventing criminal activity in the cybercurrency space, which gives investors a peace of mind when it comes to investing in the right currency. Global institutions have yet to discover, implement, and ensure optimal regulations when it comes to this growing market.
The vast potential of stable coins
So far, the cryptocurrency market has been predominantly used by versed investors and tech experts who understand the Blockchain technology as well as the many complex mechanisms that enable the existence of crypto. However, much like we’ve transitioned so many of our daily processes online, which was once unimaginable, cryptocurrencies have the potential to become the mainstream choice for those very same mainstream activities.
By that we mean shopping, monetary exchanges such as covering insurance policies, opening savings accounts in crypto, funding charities, you name it. Everything we do today with our current monetary systems can be replaced or at least complemented with the right cryptocurrency exchange system in place. Under the assumption that there is an overarching system of rules and regulations that protect its users.
Cryptocurrencies in general still have so much to offer, and while the tech behind them still unravels, we are likely to see many changes in the market. For the time being, however, stable coins provide the safest harbor in terms of digital investments, and they come with the grandest potential to ensure stability and value in the years to come.