Cryptocurrency can seem like a rollercoaster—prices rise and fall unpredictably, leaving many wondering if there’s a way to benefit from crypto without all the risk. Enter stablecoins – the digital assets designed to offer stability in the volatile world of crypto. Whether you’re new to the world of cryptocurrency or looking for a stable way to transfer funds, this guide will cover everything you need to know about stablecoins.
Quick Takeaways
- Stablecoins are digital assets designed to maintain a steady value, typically tied to assets like the U.S. dollar.
- Types of stablecoins include fiat-backed, crypto-backed, and algorithmic, each with unique methods of price stability.
- You can buy stablecoins like USDC and USDT quickly through the RockItCoin app for secure and stable crypto transactions.
What is a Stablecoin?
At its core, a stablecoin is a type of cryptocurrency designed to maintain a stable value by being tied to a reserve asset like the U.S. dollar, gold, or even other cryptocurrencies. Unlike Bitcoin and Ethereum, which can experience significant price swings, stablecoins are intended to hold their value consistently. For instance, a stablecoin like USDC or USDT is pegged to the U.S. dollar, meaning that 1 USDC is typically equal to $1.
This stability makes stablecoins an attractive option for people who want to use cryptocurrency for everyday transactions, savings, or to transfer money across borders—without worrying about losing value overnight.
How Stablecoins Work
Stablecoins maintain their value by being backed by assets or through mechanisms that stabilize their price. Here’s a breakdown of the most common types of stablecoins:
Fiat-Backed Stablecoins
These stablecoins are backed by traditional currency reserves like U.S. dollars or euros. For every USDC or USDT in circulation, an equivalent amount of fiat currency is held in reserve by the company that issues the stablecoin. This ensures that the value remains stable, as you could theoretically exchange 1 USDC for 1 actual U.S. dollar. This type is the most popular and includes USDC and USDT.
Crypto-Backed Stablecoins
Unlike fiat-backed stablecoins, crypto-backed stablecoins are backed by other cryptocurrencies. For instance, a stablecoin like DAI uses collateral in the form of Ethereum or other digital assets. The system over-collateralizes, meaning that for every $1 worth of DAI, there’s more than $1 worth of cryptocurrency backing it to account for the volatility of the underlying assets.
Algorithmic Stablecoins
Instead of being backed by fiat or crypto, algorithmic stablecoins use algorithms and smart contracts to control the supply of the coin in order to maintain its price. When the price drops, the algorithm reduces the supply of the stablecoin, and when the price rises, it increases the supply. TerraUSD (UST), before it collapsed, was an example of an algorithmic stablecoin.
Why Do Stablecoins Matter?
Stablecoins solve a critical problem in the crypto space: volatility. The crypto market can fluctuate quickly, with prices changing by the minute. Stablecoins provide a way for users to store value without worrying about losing significant amounts of money.
Here are some reasons stablecoins are so important:
- Stability for Trading and Transactions: Many traders use stablecoins to quickly exit volatile cryptocurrencies without converting to fiat currency. This allows them to maintain liquidity in the crypto ecosystem.
- Remittances: People in countries with unstable currencies or high inflation rates use stablecoins to send and receive money globally. For instance, in places like Argentina and Turkey, where inflation has reached record highs, stablecoins offer a way to preserve value. In 2023, Argentina had an inflation rate of over 100%, leading many to rely on stablecoins like USDT to protect their savings.
- Decentralized Finance (DeFi): Stablecoins are also crucial to the world of DeFi, where they are used for lending, borrowing, and liquidity pools in decentralized applications.
Popular Stablecoins You Should Know
Let’s take a look at some of the most commonly used stablecoins:
USDC (USD Coin)
Market Cap: $34.4 Billion
USDC is one of the most trusted and widely used stablecoins. Issued by Circle, USDC is backed 1:1 by U.S. dollar reserves held in regulated banks. Circle publishes monthly attestations from a top auditing firm to confirm that USDC is fully backed, offering a high level of transparency.
USDT (Tether)
Market Cap: $120.2 Billion
Tether (USDT) is the most popular stablecoin by market cap and is widely used for trading and transactions. While USDT has faced scrutiny in the past regarding the transparency of its reserves, it remains the most used stablecoin for transfers and savings in regions with unstable currencies, like Turkey, where USDT is increasingly popular due to the country’s high inflation.
DAI
Market Cap: $5.3 Billion
Unlike USDC and USDT, DAI is a decentralized stablecoin that is backed by other cryptocurrencies instead of fiat. It operates on the Ethereum blockchain and is an integral part of many decentralized finance (DeFi) platforms. DAI’s value remains pegged to the U.S. dollar, despite being collateralized by volatile assets.
How to Buy Stablecoins with RockItCoin
Buying stablecoins with RockItCoin is a straightforward process that anyone can follow. Whether you’re looking to store your money in a more stable asset or use stablecoins for transactions, RockItCoin makes it easy to get started. Here’s how you can buy stablecoins like USDC and USDT using the RockItCoin mobile app:
1. Download the RockItCoin App
Start by downloading the RockItCoin app from the App Store or Google Play Store.
2. Create an Account
After downloading the app, sign up by creating an account with a secure username and password.
3. Select the Stablecoin You Want to Buy
In the Buy menu, select ‘buy crypto with a credit or debit card’. Choose the stablecoin you’d like to purchase (USDC or USDT). You may have to create a new wallet to hold your stablecoins.
4. Choose Your Payment Method
You can use your debit card, credit card, Apple Pay, or Google Pay to complete the purchase. RockItCoin makes it convenient to buy stablecoins using a variety of payment methods.
5. Receive Your Stablecoins!
After completing the purchase, your stablecoins will be transferred to your wallet. You can then use them for transactions, savings, or investments in the crypto world.
Buying stablecoins through RockItCoin is a safe and easy process, making it accessible for users new to crypto or those looking for a more stable entry into the market.
Stablecoins and Their Role in DeFi
Stablecoins are crucial in the world of Decentralized Finance (DeFi). In DeFi, users interact with financial services like lending, borrowing, and trading without relying on traditional banks. Since stablecoins maintain a stable value, they are often used in the following DeFi applications:
- Yield Farming: Users can earn interest by lending out their stablecoins through DeFi platforms.
- Liquidity Pools: Stablecoins are used to provide liquidity in decentralized exchanges (DEXs), enabling traders to swap between cryptocurrencies efficiently.
- Lending and Borrowing: Many platforms allow users to lend their stablecoins to others or borrow them using crypto as collateral.
Stablecoins provide the stability that DeFi protocols need to operate efficiently, making them an integral part of this growing sector.
Stablecoin Usage in Countries with High Inflation
Stablecoins aren’t just for crypto enthusiasts—they play a crucial role in helping people around the world protect their wealth. In countries with high inflation, such as Argentina and Turkey, local currencies lose value rapidly, leaving citizens scrambling for ways to preserve their savings. Stablecoins offer a solution.
In Argentina, for example, the inflation rate has soared over 100% in 2023, leading many to abandon the peso in favor of USDT, which holds its value against the U.S. dollar . Similarly, in Turkey, inflation rates hit 85.5% in 2022, driving a surge in stablecoin usage, particularly USDT, as citizens seek refuge from their rapidly devaluing currency.
By holding stablecoins like USDT or USDC, individuals can safeguard their savings from the effects of hyperinflation. This growing adoption highlights the real-world utility of stablecoins beyond just trading and investing.
Are Stablecoins Safe?
The safety of stablecoins largely depends on how they’re issued and managed. Fiat-backed stablecoins like USDC are considered among the safest because they are backed by real assets and undergo regular audits by top accounting firms. This transparency gives users confidence that each stablecoin is fully collateralized and redeemable for the underlying asset.
While Tether (USDT) has been criticized for a lack of transparency in the past, the company has made strides to improve its auditing practices. However, users should always research and understand the risks involved with any stablecoin before making a purchase.
At RockItCoin, we prioritize safety and security, ensuring that all transactions made through our platform are compliant with regulations and transparent, so you can feel confident when purchasing stablecoins.
Conclusion
Stablecoins have become a vital part of the cryptocurrency ecosystem, offering stability in a volatile market. Whether you’re looking to use them for everyday transactions, hedge against inflation, or participate in DeFi, stablecoins like USDC and USDT provide a secure and reliable option.
To get started, download the RockItCoin app and buy stablecoins today. With an easy purchasing process and a trusted platform, RockItCoin makes entering the stablecoin market simple and secure.
FAQs about Stablecoins
What is a stablecoin in simple terms?
A stablecoin is a type of cryptocurrency designed to keep a steady value, often pegged to traditional currencies like the U.S. dollar. Unlike volatile cryptocurrencies like Bitcoin, stablecoins offer a more predictable price, making them ideal for everyday transactions and savings.
How does a stablecoin maintain its value?
Stablecoins maintain their value by being backed by reserves or through mechanisms that control their supply. For example, fiat-backed stablecoins like USDC and USDT hold dollar reserves to ensure each coin is redeemable for $1, while algorithmic stablecoins use smart contracts to manage their price.
What are stablecoins used for?
Stablecoins are commonly used for trading, transferring money internationally, and participating in DeFi applications like lending and yield farming. They offer a way to store value within the crypto space without the usual price volatility.
Are stablecoins safe to use?
Most stablecoins, especially fiat-backed ones like USDC, are generally safe as they are backed by real assets and undergo regular audits. However, users should choose reputable stablecoins and do their research on the reserves and transparency of each stablecoin.
How can I buy stablecoins like USDC and USDT?
You can easily buy stablecoins like USDC and USDT using the RockItCoin mobile app. Download the app, select your stablecoin, and purchase using a debit card, credit card, Apple Pay, or Google Pay.
Why are stablecoins popular in countries with high inflation?
In countries experiencing high inflation, such as Argentina and Turkey, local currencies often lose value quickly. Many people use stablecoins to protect their savings from devaluation, as stablecoins maintain a steady value by being pegged to stronger currencies like the U.S. dollar.
What’s the difference between USDC and USDT?
Both USDC and USDT are fiat-backed stablecoins pegged to the U.S. dollar, but they are issued by different companies with different levels of transparency.
