Choosing what to invest in isn’t difficult if you’re guided in the right direction. Because there are so many cryptocurrencies on the market, it’s difficult to choose one. There’s always an answer, and it’s “Go with the original one.”
However, we’re not here to discuss whether you should invest in Bitcoin or something else. We’re here to discuss what stablecoin is, how it works, and the top 5 picks you should consider investing in.
What Are Stablecoins?
The cryptocurrency market can be incredibly volatile, and evidently, Bitcoin has seen major drops and surges in market value. If you look at the statistics on any crypto trading website, you can see reports that there are hourly spikes and drops of about 10%. Whereas, in a day, it’s seen 50% changes in its value.
Due to all this instability, purchasing a cryptocurrency and waiting for the price to be right is risky. So, the stablecoin emerged, guaranteeing purchasing power for a longer term than intended for any other cryptocurrency. As buidlbee reports, stablecoin should have a fixed value.
How Does Stablecoin Work?
Stablecoins usually aim to bring their value as close as possible to something in the real world. Pegging the market value of a stablecoin is usually done by attempting to gain the value of fiat currency. Fiat money isn’t backed by commodities.
Then, instead of trading in cryptocurrencies prone to volatile changes directly, you can trade using stablecoins as a medium. However, as there are many regular cryptocurrencies, there are many stablecoins as well, and here are their types:
- Algorithmic: These are based on algorithms that reduce and increase the stablecoin’s value. For example, there’s an optimum number of stablecoin tokens in circulation, and the algorithm decreases it when fiat currency is above the market value and vice versa so that the value of the algorithmic stablecoin stays the same.
- Collateral fiat-backed: This is the stablecoin type that’s the most popular one because it’s not backed by assets on the blockchain. As it’s the most popular one, there are several types that we’ll discuss later.
- Collateral crypto-backed: The type of stablecoin that’s backed by another cryptocurrency. The only way this works is because the stablecoin is overcollateralized to compensate for the value loss.
- Commodity-backed: These stablecoins use crude oil, real estate, gold, silver, and other physical assets as collateral. Of course, you can guess the commodity that’s most popular when it comes to collateral. That’s right, it’s gold.
Top 5 Stablecoins to Invest In
Now, because there are so many choices for both cryptocurrencies and stablecoins, we’ve discussed the top 5 picks for stablecoins to invest in in the year 2022. Hopefully, you’ll make the right choice when you finish the article.
1. Tether (USDT)
Pegged at $1 worth, the Tether USD tethers the value of the currency to the value of one dollar. This is a fiat-backed stablecoin, and it’s very popular because of its $69.53B market cap.
What sets Teether apart from other stablecoins is the fact that it’s the most traded stablecoin daily used for different crypto loans and trades. It’s the most likely of all stablecoins to earn interest.
2. Binance USD (BUSD)
The Binance USD serves the same purpose as any other stablecoin. It’s there to minimize if not eliminate the volatility risk. Binance USD was created through the collaboration of Paxos and Binance.
The value is equal to the value of $1. It’s not an investment. However, if you feel that because of high volatility you might lose value on other cryptocurrencies, definitely invest in BUSD. Unlike the USDT value, the BUSD doesn’t fluctuate, it remains the same value as the USD.
3. TrueUSD (TUSD)
The TUSD market cap is $816.30M, and the current price of the TrueUSD is equivalent to $0.9993. So, unlike the BUSD, the TUSD is also prone to fluctuation. However, these aren’t large deviations from the real value of $1.
It’s a good investment tool, as its value may increase when there are huge spikes in trades on the cryptocurrency market. However, it may decrease as well. It should be used as a trading medium instead of an asset.
4. Dai (DAI)
It might not be a good fit for investing, but it is an excellent tool because it offers great stability and liquidity. DAI is based on smart contracts and it’s a stablecoin backed by other cryptocurrencies, a crypto collateral stablecoin.
5. USD Coin (USDC)
USDC is very similar to all the other stablecoins, it’s collateralized in fiat currency, and this means that it also holds roughly the same value as $1. You can buy pieces of it, like with any other cryptocurrency.
Again, we don’t recommend using USDC as an asset, but we recommend using it as a tool or a medium for trading other cryptocurrencies. It’s not risk-free because it can undergo scrutiny from well-known financial institutions.
There you have it, the top 5 stablecoins to use as investment tools in 2022. The USDT is the most popular one, but the BUSD is the one that doesn’t have any fluctuation in its value. Hopefully, this was helpful.