Stablecoins have become one of the most popular topics to discuss in the crypto world. Some people adore them and promote their usage as much as possible. While some see them as a risk that may turn the decentralized and independent crypto industry into another department of big finance institutions.
So, who is right? What are stablecoins, how to use them, and what are their benefits? Do they have a future as independent digital coins or are they more likely to become a digital equivalent of fiat? In this article, you'll find out everything you want to know about stable tokens but were afraid to ask.
What are stablecoins?
Stablecoins is a cryptocurrency that aims to maintain an approximately stable value, by pegging it to a stable asset. It can be fiat, gold, silver, or even other popular cryptocurrencies. The main idea behind these coins is to create a digital coin with low volatility, so people who are used to fiat can work with crypto.
If the USD course falls by 10-15%, USTD will face an almost identical value decrease. If USD increases its value by 5-15%, so does USDT. Stablecoins typically use a reserve of a chosen asset to maintain the peg and ensure the stability of digital coins. The most common types:
- Fiat-collateralized. The most common type, backed by a reserve of fiat, like Tether (USDT), TrueUSD TUSD, or PAX.
- Crypto-collateralized. They are backed by a reserve of another cryptocurrency, like the Dai coin for MakerDAOs. It has similarities with stock exchange indexes like the S&P 500.
- Commodity-collateralized. They are backed by a physical commodity such as gold or silver. The most popular coins are Digix Gold and Tether Golf.
- Algorithmic. They use algorithms to maintain a peg to stable assets or basket assets. They don't need asset reserves to keep working. The most common examples are Ampleforth (AMPL) and Basis Cash (BAC).
- Hybrid. They mix some collateralized types with algorithmic ones, like TerraUSD (UST).
Each coin has its advantages and disadvantages. If you have just started your crypto journey, try collateralized currencies. If you are more confident, try to add some hybrid coins to your wallet. The riskiest options are non-collateralized and redeemable, so I don't list them here. Try them only if you are not afraid to lose the invested money.
Benefits of using stablecoins for crypto transactions
There are many benefits of those coins. First, they have a stable value compared to other digital coins. It makes them a reliable choice for those who want to try cryptocurrency without worries about possible price volatility.
Stablecoins are much faster than fiat bank operations. It's a great choice for international transactions and even for payrolls for a team in different countries. Employees don't need to worry about SWIFT, and they don't need to look for the nearest Western Union office. They can send money to employees almost immediately. They offer more privacy and cybersecurity rather than classic payment options. They provide lower transactional fees compared to traditional payment methods. And most importantly, they are not controlled by any central authority. You are free to choose whatever digital coin you like.
The most common example of stablecoin usage is in payments. You can use them both for online and offline payments. Most sellers who support crypto outside the “IT bubble” work with Bitcoin, Ethereum, and USDT as the most common and predictable coins. You can use stablecoins for trading, savings, or investment. If you are an employer, you can use them to pay salaries. You can use the Defiway Payroll service and be sure that the employee receives a paycheck. This tool has automated tax filing compliance, so you can send your salary legally.
You can also use digital coins for sending money to your loved ones in another country. If you live in the USA but have family all around the world, it may be frustrating to look for fast and budget-friendly opportunities to send money to them. But if your loved ones have a stablecoin wallet, it becomes an easy task.
How to use stablecoins for crypto transactions
As I said before, cryptocurrency has multiple usages, so here I want to explain more about it. If you want just to store stablecoins you can use both hot wallets (connected to the internet 24/7) and cold wallets (physical devices that you connect to the PC, so it will be connected to the internet). To acquire them you need to sign up on some exchange that supports stablecoins and purchase some digital coins. Or wait until your employee or closed ones send you crypto on the wallet that supports stablecoins.
To use this digital currency, send them to the recipient's wallet. As you see, this coin type works basically as any other cryptocurrency. The key difference between them is that they have a more stable value than other crypto coins.
But which platform supports those tokens? Where can you use them? First of all, you can use the most common stablecoins here, in Defiway wallet, exchange, and payment services.
If you want to try other services, use the most popular and trusted ones. In exchanges, it could be Coinbase, Binance, Kraken, or Gemini. If you are looking for another decentralized exchange, take a closer look at Uniswap and Curve. The easiest way to find out the trustworthiness of a service is if they show their employees.
If the service is not afraid to show its experts, it's a good sign. They try to build a good reputation by making their service even more relatable. You can find those people on Linkedin and talk with them. But if the business doesn't show its experts, it's a bad sign. They are afraid to show themselves, so they try to stay incognito as much as possible.
Use only a secure wallet. It will be perfect if it has extra measures like two-factor authentication or both hot and cold options. Verify each transaction carefully because if you accept funds from a wallet with illicit funds, your wallet will be marked as suspicious. Be aware of regulatory and tax requirements in your region. Some countries provide tax-free crypto regulations, while in others you need to pay taxes for every transaction.
The future of stablecoins in 2023
Stablecoins have become more and more common in the crypto industry. Considering the high volatility of Bitcoin and other digital coins in the last two years, more and more people prefer to use relatively stable options. And these tokens are likely to continue building their influence in the future.
One of the most potentially growing areas is cross-border payments and remittances. Both sender and receiver can transfer money almost immediately in any part of the world with low fees. The current bank system is complex and has pricy fees for international payments. On the other hand, crypto is a fast and efficient way to send money. And if you use tax-compliant services, such as PayRoll from Defiway, you can do it legally with proper taxation.
Another potential growth area is decentralized finance. Most people are scared to lend and borrow highly volatile crypto coins. But stablecoins are far more predictable, so they are a great way to start your career as a crypto lender.
But overall, the future of stable tokens will depend on a variety of factors, including regulatory changes, market trends, and technological advancements that make people more innovation-friendly.
We will see adoption by traditional financial institutions. They may launch their stablecoins in the next 2-3 years! But we will also see even more regulations. So, you should prepare that in the next 5-10 years those tokens will have more similarities with the fiat rather than classic cryptocurrency.
Wrapping Up
Stablecoin is a digital currency that aims to maintain a relatively stable value compared to other cryptocurrencies. They are usually pegged to fiat, commodity, or other cryptocurrencies. They reduce volatility and fast transaction times making them a great choice for those who have only started their crypto journey. You can use stable tokens for making payments, salary enrollment, trading, remittances, or at decentralized finance. The stablecoin market is rapidly growing, so we will see many more digital currencies. But as for 2023, the most popular options are USDT, USDS, PAX, and DAI.
Integrate the Defiway protocol to store, trade, and exchange stablecoins. You can also use our Payroll service to pay salaries in stable tokens to your employees. Subscribe to our socials to get more useful fees on how to save and increase your crypto capital!
