What is a stablecoin?
Basically, cryptocurrencies like Bitcoin have difficulty functioning as currency because their prices keep changing.
Of course, the dollar's value also fluctuates (exchange rate), but coins can move by dozens of percent in a single day, leading to extreme volatility.
This is where the concept of stable (pegging) comes in. A stablecoin refers to a coin designed to track the value of 1 dollar. The representative stablecoins 1USDT or 1USDC are worth exactly 1 dollar.
By setting the price of 1USDT or 1USDC to track 1 dollar (pegging), they perform a similar role to the dollar, holding stablecoins as if they are holding deposits.
Then, when needed, you withdraw, and if you wish to invest, you buy Bitcoin with that USDT.
Can't you just hold real dollars? You might think that, but many virtual currency exchanges often do not have actual bank account integration. Transactions are only between coins.
Therefore, there is a need for a coin that acts as a bridge, and that role is fulfilled by stablecoins, which is why stablecoins are said to mean stability.
How is the price maintained?
Coin prices are determined by supply and demand. If you think investing in Bitcoin will make money, demand surges and the price rises.
However, the concept of investing in stablecoins does not exist. Since the price is 1 dollar, there’s no reason to invest because the price won’t go up.
Let's take USDT and USDC as examples. USDT and USDC are two representative stablecoins. As the name stable suggests, both coins are priced at 1 dollar.
The reason the price is maintained at 1 dollar is that the operating companies behind the two coins hold reserves like a bank to guarantee stable payouts. The trust that a 1:1 redemption is possible is what maintains the price.
Both USDT and USDC officially state that they hold 100% reserves.
Tether publishes its own reports, and Circle is regularly audited by Deloitte.
In the past, it was said that the pegging was done algorithmically, but there was a time when it fell during the Luna incident because the peg was not maintained.
Can you invest in stablecoins?
Basically, aiming for price differentials is impossible. The price doesn't fluctuate from 1 dollar anyway.
You can consider stablecoin investment as a type of deposit.
In our country, regular deposits yield less than 1%, and even time deposits are around 2-3%.
However, stablecoins offer around 3-4% interest. Users deposit dollars and receive coins, while the operators invest that dollar in government bonds, etc., and share the profits.
Compared to regular deposits, there is no legal deposit protection, but the interest rate is about twice that of major banks.
As long as there is a guarantee that the reserves are indeed secure, investing in stablecoins is quite worthwhile. The influx of stablecoins has reached a staggering 332 trillion won. As countless investors trade coins through stablecoins, enormous funds are circulating in stablecoins.
If you want to invest in such stablecoins in a deposit manner, I recommend signing up for Binance. You can receive a 20% discount on fees when you sign up through this link.
⭐ Go to receive the 20% discount on Binance fees
New members as well as existing members can receive a 20% discount on fees if they meet the following 5 conditions.
1. You must already be registered on Binance.
2. The invited person has not accepted an invitation before.
3. The invited person's account has not traded or used products on the Binance platform in the last 180 days.
4. A confirmation window will appear when the eligible inviter opens the link and logs in.
5. The inviter must click [Bind Now] for the binding to take effect.
Thus, we have explored the meaning of stablecoins and how to receive a discount on Binance fees. Next time, I will come back with a more informative post. Thank you.