Stablecoins are a class of cryptocurrency whose price is more stable than non-fiat cryptocurrencies such as bitcoin. The market value of stabelcoins is tied to the value of a “stable” reserve asset such as the U.S. dollar or gold. For example, Binance USD (BUSD), USD Coin (USDC) and Tether (USDT) are backed by the U.S. dollar at a 1:1 ratio, meaning one BUSD, USDC or USDT equals one U.S. dollar.
Why are stabelcoins important?
- Stablecoins are an island of stability in a volatile market
Stablecoins are as valuable to cryptocurrency investors and traders as fiat currency is to traditional market participants – they provide stability. For example, while traditional investors may allocate some assets from their portfolios to cash or treasuries when volatility increases, cryptocurrency investors may switch to stablcoins. - Stablecoins are a fast and efficient means of trading
Cryptocurrency investors and traders often turn to stablcoins in a volatile market. Buying stabelcoins allows them to stay in the cryptocurrency market and make new trades quickly, without waiting days for fiat money to be transferred. - Stablecoins increase liquidity and volume in the cryptocurrency market
The stability and efficiency of stabelcoins inspire confidence in the cryptocurrency market, so more people are willing to interact with it. An increase in the number of market participants increases trading volume and market capitalization. This, in turn, leads to more liquidity, which increases the efficiency of the cryptocurrency market. Improved efficiency also ensures more accurate asset pricing, resulting in fairer asset prices and tighter spreads between supply and demand.
How can you use Stablecoins?
Minimize volatility.
Assets like stablecoins can give risk-averse buyers and sellers confidence that the value of their tokens won’t rise or fall unpredictably in the near future. The stability of stabelcoins is suitable for beginners and experienced traders alike, and makes them a good asset to save or invest in, especially during bear market periods.
Earn Interest.
Traders and investors can earn interest with Stablecoins through lending and staking. Lending is the lending of stackablecoins in exchange for interest payments from borrowers. Stacking is the process by which cryptocurrency transactions are verified. By contributing your coins to steaking, you have the opportunity to receive a reward. The more coins you contribute, the more you can potentially earn.
Binance offers a full suite of products for a variety of financial needs. Crypto investors can buy Stablecoins like Binance USD (BUSD) and earn capitalized interest through Binance Earn. Learn more about it here. You can also make regular purchases for USDT, BUSD through Regular Purchase.