What Are Stablecoins and Why Are They Important in Crypto Markets?

As the world of crypto keeps evolving and growing every blessed day, there is one particular word that you will be conversant with daily and that is called Stablecoins. Well stablecoin are generally coins that offer stability in the crypto market just like the name implies. As a Nigerian I am and with the volatility of my country's currency, I will say it is needed to understand the important role that the stablecoins play in the crypto space.

But to go deeper, what do we really mean when we hear about stablecoins. They are actually crypto that helps to maintain the stable value that is pegged most of the time to the value of US dollar and sometimes other asset like Euro or even gold. Compare to bitcoin and Ethereum, they are actually volatile and can not be regarded as stablecoins. Stablecoin has resistance to the volatility movement in the crypto space.

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There is this popular stablecoin called Tether (USDT). As it is worth to be $1. This helps to give the crypto users a way to store value even though there is volatility that might want to happen in the crypto space. Now let me move to the aspect that how do stablecoins work. Stablecoin most of the time achieved their stability when they are backed to a particular asset in the ratio of 1:1. And when it actually comes to stablecoins, there are different types of stablecoins. We have the fiat collaterised stablecoins. Now majorly this is backed to the fiat reserves and most of the time are held in the bank.

We have the Crypto collateralised stablecoins. This is backed to other crypto. Examples like the Steem dollar we have on this platform, we have the DAI that is backed to the Ethereum as this helps to still maintain the value of the coin. Then we actually have the Algorithmic Stablecoins which I might not actually be able to talk much more about.

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There are so much of importance that stablecoins offers that we might not be aware of. The first one is that it helps to reduce the volatility effect. The crypto space is majorly known for its Volatility but with stablecoins, you are sure your funds or investment might not be affected by the volatility movement. Not only that but also the stablecoins offer and helps to enhance payment transactions. There are some transactions that the stablecoins helps to carry out majorly because one is sure that the value is still retained and sustained actually.

Then as I conclude, the stablecoins helps to also protect against inflation. The truth is you can not avoid inflation. At every point, you need to understand that the economy of most countries like Nigeria is subjected to inflation. There is a way stablecoin helps to give Nigerians the form of savings and this helps to actually preserve the value of their money for years without the value of the money not depreciating for years.