For many new and seasoned cryptocurrency investors, it is important to note that the ecosystem is characterized by bulls and bears – trending upwards or downwards depending on several market factors such as public hype, supply, demand, and investor sentiments, among others.
Therefore, to sustain the community of users who aim to build wealth and enjoy the freedom of money through investments in cryptocurrency, niche digital currencies have been developed by exchange platforms to hedge against such volatility, known as Stablecoins.
Stablecoins play a vital role in the crypto economy by introducing more liquidity into the ecosystem, allowing more digital asset trading on cryptocurrency exchanges. The different types of stablecoins are pegged based on their underlying collateral structure: fiat-backed, commodity-backed, crypto-backed, or algorithmic.
For instance, on Binance, the Binance USD (BUSD), USD Tether (USDT), and USD Coin (USDC) are secured to the US dollar on a 1:1 basis, which means that the value of one BUSD for instance, is the same as one US dollar. As its name implies, its purpose is to provide price stability and serve as an alternative to the volatility of other cryptocurrencies, limiting their use cases for possible transactions.
For new investors and expert traders, the certainty of stablecoins makes them a good asset to invest in and hold on to, especially during bear markets. In the same way that traditional investors might choose to keep portions of their assets in low-risk instruments like treasury bonds or mutual funds, crypto investors also have the option of utilizing stablecoins; this provides a long-term store of value for players in the crypto space, especially when the market takes a prolonged downward turn.
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