Dubai: For investors interested in gaining exposure to cryptocurrency but worried about rampant volatility, Stablecoins may be worth a look.
Dubai: While cryptocurrencies such as Bitcoin and Ethereum have disrupted the way many investors interact and think about money, traditional investors may opt to steer clear as prices can change drastically from one moment to the next.
Stablecoins, on the other hand, as the name suggests are less subject to volatility. Stablecoins are cryptocurrencies that are backed by an asset, most often a ‘fiat currency’. They maintain much of the appeal of other cryptocurrencies, however, allowing investors access to a new and evolving asset class.
What is a fiat currency?
It is important to understand here that this demand and supply is decided by the participants of the network who are bringing a fiat currency into use. Fiat currency or money establishes the exchange of value with the help of the government’s backing.
For example, within a network, I trade a Dh100 note for a mobile phone, I am essentially exchanging value worth Dh100 for the phone. The store-keeper, takes the Dh100 note and buys his meal with the same or invests it to create more value.
So Stablecoins are essentially a form of cryptocurrency that has a fixed price. In a nutshell, a Stablecoin is a coin that tries to stay at a stable price, having been backed by some asset. It is used to overcome the volatility of the market.
However, Bitcoin is not a Stablecoin. It is not backed by anything in fact. It has grown in value because people see the value of a decentralised currency, and supply and demand has taken care of the rest.
To understand the perks of Stablecoins, it’s vital to understand what the downsides of Bitcoin are.
A major flaw of Bitcoin, addressed with Stablecoin
Lacking any intrinsic value, logic dictates that Bitcoin’s price could be anything or nothing at all….