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.
For
instance, Binance USD (BUSD), a U.S dollar-backed stable coin approved by the
New York State Department of Financial Services (NYSDF) is one of the most
trusted stablecoins available in the ecosystem. It has continued to maintain
its position because it is backed and regulated by reserves contingent on
regular attestation. With BUSD, investors are protected by a regulatory body
that has painstakingly assessed the underlying foundation of the asset offered
to new and experienced investors. In other words, investors can rely on coins
like BUSD as low-risk instruments because of the strength of the regulation
that goes into establishing the fiat-back reserve of each stablecoin.
Another key benefit of having a regulated stablecoin is that much like in the
traditional market where investors can earn a fixed interest from a variety of
investment products, crypto investors can also earn interest with stablecoins
through lending. Investors can earn at a set interest rate from borrowers when
they lend out their stablecoins. Also, a user can earn interest with
stablecoins through staking, which involves holding funds in a cryptocurrency
wallet to support the security and operations of a blockchain network for which
they receive rewards.
A crucial role stablecoins have been able to play, due to their highly
predictable stability, is the building out of some of the more recent
applications in the crypto space, namely non-fungible tokens (NFTs) and
decentralized finance (DeFi). Stablecoins have enabled investors to generate
returns on their crypto assets in the DeFi market while alleviating the
potential adverse effects of market volatility. Dollar-backed stablecoins like
Binance USD (BUSD) are one of the preferred currencies of NFT marketplaces and
storefronts. These digital currencies offer a convenient funding source for NFT
enthusiasts. Thus, stablecoins are creating the foundations for blockchain and
crypto applications.
As more people in Africa aim to take control of their finances and achieve
financial freedom, stablecoins will remain a suitable alternative to fiat
currencies, serving as an essential part of the crypto ecosystem. In addition,
even though stablecoins are currently considered a niche crypto asset, they are
well on their way to becoming a store of value and means of payment outside the
crypto ecosystem. This is because to function effectively as a currency
alternative, cryptocurrencies need to possess certain qualities such as
liquidity, relatively low-price volatility, and the ability to be integrated
with established financial institutions; all qualities the stablecoins
currently possess.
Future regulation and compliance coupled with the collaboration with other
fintech companies focusing on digital payments could potentially make
stablecoins an option for retail payments as well as cross-border payments and
remittances.
Interested in purchasing and investing in stablecoins? Get started today by
downloading the Binance app here and trade from anywhere in the world. There are
different options available for buying cryptocurrencies at Binance; through a
fiat deposit or by using a Binance P2P.
Source:
Peacefmonline.com/Ghana