A stablecoin is a type of cryptocurrency created to keep its value stable compared to an asset like the US dollar or gold. The value of the coin is tied to a specific asset using algorithms thus, a constant and stable price is maintained.
For example:
1 USDT = $1
1 PHX = ₱1
*USDT is a stablecoin issued by Tether, while PHX is a Unionbank-developed peso stablecoin.
Stablecoins are considered a versatile financial instrument, making them useful for several reasons:
Stablecoins aim to maintain a stable value relative to an asset by either linking their value to that asset or utilizing algorithms to sustain a constant value. Because of this, they are a desirable choice for those who want to steer clear of the risks associated with price swings that are typical of other cryptocurrencies.
Like any other cryptocurrency, stablecoins can be used as a medium of exchange. One advantage of stablecoins as a medium of exchange is that they provide a more consistent unit of account. Stablecoins can be accepted as payment by merchants and enterprises without having to worry about the value fluctuating significantly between the moment of sale and the time of conversion to fiat currency. They are therefore a reliable and useful choice for regular transactions.
Stablecoins can be used for international transactions without the involvement of middlemen like banks or payment processors. For individuals or entities operating in nations with volatile currencies or constrained financial systems, stablecoins can be very helpful.
Jumpstart your crypto investing journey here: Introduction to Bitcoin
