Cryptocurrency has gained a lot of attention in the financial industry over the past few years, and it’s pretty clear how and why that happened. Considering the advantages and opportunities that many investors and traders gained out of crypto. One of the types of crypto that became popular amongst investors and traders is Stablecoins. Its purpose in the market is something you would not want to miss. Why? Well, here are some of the advantages and disadvantages of Stablecoins that might shed some light as to why many people tend to choose Stablecoins.
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Pros of Stablecoins
One of the goals of Stablecoins is to keep its value in the crypto market stable. Since one of the major concerns that many people have with crypto is its volatility, Stablecoins aims to minimise the volatility and also potentially minimise the losses of investors and traders even if there are sudden changes in the crypto market. If you are aware of the volatility of crypto in the market, then you also know how it could be devastating to see the market prices go down. These dramatic drops in prices could affect your investments and can result in a loss, and like any investment, you should be gaining something out of it.
Stablecoins are one of the most convenient cryptos you can find in the market. Transacting with crypto is starting to become normal in the financial industry and there’s a possibility that it could be used globally. Stablecoins are backed by fiat currencies and that’s why transacting with a real and tangible asset is an advantage to many. They can be exchanged for a product at any time without going through a long process. Added to that, transaction fees are exceptionally low compared to other means of payment. Many platforms like crypto-engine.org, offer convenient crypt transactions.
Backed by Fiat Currencies
Like we’ve mentioned above, Stablecoins are backed by fiat currencies such as U.S. Dollars. Meaning to say, the price will remain stable even if the crypto market experiences dramatic price drops. There are still other types of Stablecoins that can be used to your advantage but fiat currency is commonly one of the strong aspects of Stablecoins and it’s a good option to go for when you are planning to get a long-term investment.
Cons of Stablecoins
Requires A Third Party
Transactions happen every day and although other types of cryptocurrencies wouldn’t normally require a third party to complete a transaction, Stablecoins will require you to use a third party to complete a transaction. It would require you to trust another form of entity to proceed with a transaction. A peer-to-peer transaction is what cryptocurrency boasts and if Stablecoins require a third entity, the privacy of the other parties could be in question.
Requires External Audits
Unlike other cryptocurrencies where all of the transactions are validated and recorded on an online ledger, Stablecoins will typically require additional audit sessions to make sure that all of the transactions and assets are all accounted for. The idea of requiring an external audit contradicts one of the best aspects of cryptocurrency. These audit sessions normally require a lot of time to complete and that is what people avoid nowadays. Quick and easy transactions are what people are after.
We’re not saying that there is no profit to be gained out of Stablecoins, but since Stablecoins are backed by fiat currencies, their value will most likely stay the same for a long time. If their value stays close to its original state, it’s also likely that there will be lesser returns on your investments. So, the question of why would you invest in something with a small return will come to your mind and you might as well consider other alternatives to earn.
Stablecoins are a good option to choose if you are looking for a long-term investment. But, since there are still risks associated with cryptocurrency, you should be well prepared when the time comes that you start investing. Tons of crypto exchanges can help you start an investment and hopefully help you work your way up to the top.