What is a stablecoin? |
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A stablecoin can be define as a type of cryptocurrency that is developed to maintain and ensure a steady value, that is often linked, connected or subjected to a traditional currency like the American Dollar (USDT) or some other valuable amounts or resources. One good thing about stablecoin is that is unpredictable just like normal crypto coin and is also good for our everyday financial transactions without any Mystery.
How do stablecoins maintain their value? |
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Stablecoin maintain their value in a way that depending on the amount, transactions or a type of stablecoin involved,below are some other ways of how they maintained their value.
according to research I have learnt that stable coins maintain their market value through collateralization mechanisms, algorithmic adjustments, and balancing market demand and supply.
In a sense that it maintains their stability through maintaining and keeping in observation reserve assets as collateral or through algorithmic formulas that are supposed to control supply of the particular assets.
Fiat-backed: This is concern with the support render by the traditional currency like the US dollar which I earlier mentioned, for the increase in the value system.
What are the main uses of stablecoins? |
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In my area of understanding below are some main uses of Stablecoins in my view.
.stablecoins are good for everyday transactions such as paying bills, and buying stuffs as their value does not fluctuate.
. In trading, stablecoins provide a safe haven for traders to get hold of their money even when they are not actively trading thereby avoiding market volatility.
. Stablecoins makes sending money across boarders cheaper and faster without you worrying about exchange rate volatility.
How do stablecoins affect cryptocurrency market liquidity? |
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Recent discoveries shows that stablecoins have great impact in the crypto world. Stablecoins help the Cryptocurrency market run smoothly by providing a store of value and the affect the market liquidity in the following ways.
. Attraction of new investors As we know stablecoins offer a less volatile ground for those traders who are very cautious about Cryptocurrency fluctuations, hence increasing participation and liquidity.
. Facilitate trading: Stablecoins help traders to to move in and out of positions in an easy way as they are not meant to worry about price fluctuations.
. Increase in trading pairs: Stablecoins can be paired with multiple Cryptocurrencies which expands trading options and boosting liquidity.
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