Let’s tell you what are the stablecoins within the world of cryptocurrencies. It is an alternative to digital currencies such as Bitcoin or Ethereum, but designed to be a much more stable asset within a very volatile sector.

In this article we are going to try to explain to you what these types of coins are in a simple way, and so that you can see the differences with the rest of cryptocurrencies that stablecoins have. We will also tell you its main advantages over the others in case you want buy cryptocurrencies.

What are stablecoins and how they work

Stablecoins are a type of cryptocurrency whose value is tied to another asset. The asset to which they are tied depends on each one. Sometimes they can be fiat or conventional currencies, such as euros or dollars, but they can also be tied to the value of precious metals such as gold or silver, or even other cryptocurrencies.

Cryptocurrencies are a digital medium of exchange. They are an alternative to normal currencies, to conventional money, but digital and that uses cryptographic methods to secure your financial transactions, control the creation of new units, verify the transfer of assets, and maintain the anonymity of its users.

But its problem is that, when used for short-term investments, its value is very volatile and changing. We have all read that from one day to the next it seems that the value of Bitcoin and other currencies skyrockets, but then suddenly drops. Well, the idea of ​​stablecoins is to have the benefits of cryptocurrencies but without the dangers of their large changes in value.

By having it linked to another asset that is much more stable, what stablecoins achieve is that its value remains more stablemaking it a more attractive asset for those who want to invest without so much risk or to carry out transactions.

For example, the price of Bitcoin can skyrocket in a few weeks, but then in a matter of a few days it can also plummet. Meanwhile, the rises and falls of stablecoins are less pronounced, which makes it somewhat calmer and more reliable.

To give an example, we have stablecoins such as USDC or USD Coin, as well as Tether or USDT, whose value is linked to the value of dollars Americans. These two are some of the most common among the most common type, which are those linked to real currencies. This makes it easier for us mentally to know its value and stability, since we all handle conventional money.

There are also stablecoins that are backed by other cryptocurrenciesbut that use overcollateralization mechanisms to absorb the volatility of the asset to which they are linked, such as Dai. Come on, despite being linked to an asset whose value is quite changeable and volatile, it has internal mechanisms that help maintain its stable value.

Then we have two other types. Some are the collateralized with commoditieswhich have their value linked to assets such as gold, silver or oil, such as Pax Gold (PAXG). And there are also some that are not backed by other assets, but by algorithms that adjust the supply of coins and keep their price stable, although they are less common because they are more unstable.

Advantages and uses of stablecoins

The main advantage of this type of asset is the stability of their pricesbecoming a stable store of value and a good currency for transactions. They are also easy to use, since they are usually included on the pages where cryptocurrencies are bought and sold. Come on, you can buy stablecoins easily and without having to register on an extra site.

They are also good for make fast transactions abroad. Sending these assets between accounts is as fast as other cryptocurrencies. It is like making a Bizum, but it can be international, and you can send it to countries where perhaps making a conventional money transfer is more expensive due to commissions.

As for uses, in addition to making transactions knowing that the value of your cryptocurrency is the same today as tomorrow or the next few days, there is that of make safer investments. Compared to the ups and downs of conventional cryptocurrencies, you have the stability of stablecoins, whose value normally rises little by little over the months or years, but without major ups and downs.

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