Stablecoins like Terra have been gaining much attention in the cryptocurrency world lately and for a good reason. But, before knowing the best place to buy Terra, understand more about these coins. This post will discuss what they are, how they work, and why they are important.
What Are Stablecoins?
A Stablecoin is linked to a real-world asset by an algorithm. The most common type of stablecoin is fiat-collateralized, which is backed by a reserve of fiat currency, such as the US dollar.
Other types of coins include commodity-collateralized (backed by commodities like gold or oil), crypto-collateralized (backed by cryptocurrency), and non-collateralized (not backed by any asset).
Before investing in any coin, investors should do their homework. While they have the potential to provide more stability than traditional cryptocurrencies, they are not without risk. For example, if the underlying asset’s price falls sharply, the value may also drop.
How Do Stablecoins Work?
Those coins that are backed by fiat currency reserves, such as the US dollar, are the most frequent type. They can be exchanged for a given currency at a one-to-one ratio and are therefore dependent on a fiat currency reserve.
For example, if you have a USD-backed stablecoin, you can redeem it for $0.50 if the coin price is $0.50. If the cost of the coin increases to $0.60, you can still save it for $0.50.
To ensure that there is always enough fiat currency to back all great coins, they are typically issued by central banks or other financial institutions.
Why Are Stablecoins Important?
Stablecoins are essential because they offer a way to stabilize the price of cryptocurrencies, which can be incredibly volatile. Investors can avoid the volatility associated with traditional cryptocurrencies by pegging the value of a coin to a real-world asset.
In addition, they can be used to make purchases and payments without converting to a fiat currency first. This makes them ideal for use in countries where the local currency is unstable or unavailable.
Finally, they offer a way to store the value that is not subject to inflation. For example, if you have a USD-backed stablecoin, the value of your coin will not be affected by inflation in the US.
Things to Keep In Mind Before Investing in Stablecoins
There are a few things to keep in mind before investing in stablecoins like Terra.
First, it’s essential to research the different types and understand how they work. Not all coins are created equal, and some may be more volatile than others.
It’s also important to consider the stability of the underlying blockchain. If the blockchain is not secure, there is a risk that the value of these could drop.
Finally, it’s important to remember that they are intended to be more stable than other types of cryptocurrency. However, they are still subject to volatility. The value of a coin can still go up or down, so it’s crucial to monitor the market and know when to sell.
Investing in these coins can be a great way to reduce the volatility of your portfolio. Just make sure you research and understand the risks before you invest.
Popular Stablecoins in 2022
While the concept of a stablecoin is still relatively new, there are already many popular ones in 2022.
Some of the most popular include Tether (USDT), Terra (UST), USD Coin (USDC), Paxos Standard Token (PAX), and TrueUSD (TUSD). Each of these coins has its advantages and disadvantages, so it’s essential to do your research before investing.
- Tether (USDT): Tether is the original stablecoin, backed by the US dollar. One USDT is equal to one US dollar.
- Terra(UST): Terra is backed by a basket of fiat currencies. The value of Terra fluctuates with the underlying coins, but it is designed to be more stable than other cryptocurrencies. There are many exchanges that are touted as the best place to buy Terra.
- USD Coin (USDC): USD Coin is pegged to the US dollar. The coin is issued by Circle, a financial services company backed by the US dollar. Through USD Coins, you can buy goods and services or send them to other people.
- Paxos Standard Token (PAX): The coin is issued by Paxos, a financial services company. PAX can be used to buy goods and services or sent to other people.
- TrueUSD (TUSD): TUSD is one of the most popular stablecoins, and USD reserves back it. The company behind TUSD is TrustToken, which was founded in 2017. TrustToken also offers other digital assets such as TrueGBP and TrueAUD.
Stablecoins are a type of cryptocurrency designed to keep their value stable. They can provide a means to store the value that is not subject to inflation, which may be helpful for some people. If you’re searching for a more secure investment, stablecoins could be ideal.