What Are Stablecoins and Should You Invest in Them?

If you have stayed long enough on crypto trends, you must have heard the word ‘stablecoins,’ and with Bitcoin price taking a dip recently, you might want to consider investing your money into something less volatile, like stablecoins.

Stablecoins are becoming more popular because they offer stability and security for traders, especially those who want to worry less about the perpetual swings that are common with Bitcoin and altcoins.

So what exactly are stablecoins? Are they profitable investments? How do they work and what differentiates them from other cryptocurrencies? Let’s take an informative look!

What are Stablecoins

A stablecoin is a cryptocurrency whose worth is fixed to another asset, usually fiat currencies such as the U.S. Dollar or other assets like gold. They offer the stability that other tokens can’t match, making them ideal for cryptocurrency traders during times of high risk and uncertainty.

Stablecoins may not attract much attention from the public because it doesn’t offer “get rich quick” opportunities like some other cryptocurrencies. Here are a few popular stablecoins in the market:

1. Tether (USDT)
2. USD Coin (USDC)
3. TerraUSD (UST)

Stablecoins are often created by financial institutions and backed with real assets. Essentially, they are like a perfect balance between decentralized finance and traditional finance.

Holding stablecoins means you can worry less about the fluctuations of the Crypto market, which can be very unpredictable.

Due to their price stability, the demand for them remains relatively high and they are often used to price items and to move money from cryptocurrency exchange platforms with less hassle.

What’s more — stablecoins offer fast, global money transfers with low or no fees. This means you can send funds across borders without paying an extra amount for it! Additionally, these coins provide privacy and smart contract capabilities-they do not need third parties to be executed.

You can also explore lending and staking stablecoins to earn some extra interest on your investment. And there are many DeFi protocols that offer such opportunities. For example, you could add liquidity to the BUSD/ℓUSD liquidity pool on OCP using BUSD and stake the LP token to farm LINA rewards! For more info on this check out our quick guide on how to add liquidity to the BUSD/ℓUSD pool

Risks of holding stablecoins

Stablecoins are often seen as low-risk options, but they too have their own risks.

The idea of a stablecoin is to provide the same level of security as traditional currencies like dollars or euros. However, just like other cryptocurrencies, they are stored in a digital wallet or with a broker or exchange. This means that traders are also exposed to the same technical and security vulnerabilities.

Stablecoins, as is the Crypto market, remains a largely unregulated domain. While the trend may seem to be reversing, investors are advised to research thoroughly before purchasing any assets.

Conclusion

Stablecoins are a great way to add stability to your crypto portfolio since they maintain a unique position by combining the advantages of crypto and fiat currencies. However, they come with their own set of risks that you should be aware of before investing in them.

Disclaimer: The above article represents the author’s personal views alone and no one else. It is not meant to be taken as financial advice.

About Linear Finance

Linear Finance is a cross-chain compatible, decentralized delta-one asset protocol that allows users to get synthetic exposure to various assets, including cryptocurrency, commodities, and market indices. Users can utilize our cross-chain swap functionality to instantly swap assets across leading blockchain environments and DeFi protocols with unlimited liquidity and zero slippage.

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