Cryptocurrency does not just refer to high value tokens that move around and jump price on a regular basis, cryptocurrency refers to tokens that exist within the blockchain, this can also include stablecoins, crypto based tokens that are not subject to volatile price movements, instead, they are simply tethered to the price of a FIAT currency. It’s at this stage you might wonder what they are for and you’re right to ask. Stablecoins are not an asset designed to investment, you can buy them and hold on to them, but you won’t make any money off them (technically you could make a small profit from buying and selling stablecoins, but it would be a pointless motion).

Stablecoins on the other hand have been created as a means to investment, in short, they allow investors to access a range of other cryptocurrency investment options that are otherwise unavailable when buying with FIAT currency. Moreover, the use of stablecoins means that investors don’t need to use volatile tokens like Bitcoin in order to purchase altcoins, so, generally speaking, they make your investments a little safer.

According to Investopedia:

“Two primary reasons for the price stability of fiat currencies are the reserves that back them and the timely market actions by the controlling authorities, like central banks. Since fiat currencies are pegged to an underlying asset, such as gold or forex reserves which act as collateral, their valuations remain free from wild swings.”

Furthermore:

“Even in certain extreme cases when a fiat currency valuations may move drastically, the controlling authorities jump in and manage the demand and supply of currency to maintain price stability. Bulk of cryptocurrencies lacks both these key features – they don’t have a reserve backing their valuations and they don’t have a central authority to control prices when required. Stablecoins attempt to bridge this gap between fiat currencies and cryptocurrencies.”

Unlike cryptocurrencies, stablecoins are backed by assets, they are backed by the token they are tethered too. Take UDST for example (also known as Tether) each USDT token is valued at $1.00, this is made possible simply because Tether, the company that own USDT have in their accounts, $1.00 for every USDT token in existence. It’s very basic economics, but it’s starting to transform the way many users now invest in cryptocurrencies.

We would suggest you take some time to learn more about stablecoins in order to help you understand in greater deal, just how important they are and just how helpful they can be to you. The use of stablecoins can make you a much better investor, better investments means better returns, remember that!