Worried About Crypto Volatility? Here’s How to Manage Digital Assets with Stability.

2022-11-20 23:59:28 · 143 views · 5 min read

Cryptocurrency prices are anything but stable. These digital assets can gain massive value within hours before prices plummet just as fast. Whether it’s top coins like Bitcoin and Ethereum (ETH) or the smallest, cryptos remain highly volatile. This price volatility stems from crypto’s decentralized nature, which makes the assets highly speculative. So, the volume of demand on crypto assets, or lack thereof, directly affects token prices.

Considering cryptos came only recently (slightly over ten years), the sector is influenced greatly by hype and sometimes fear, uncertainty, and doubt (FUD). During FUD, panic selling causes the price of crypto to nose dive, resulting in massive losses for token holders. Not many can handle the chaotic price volatility. Enter stablecoins!

A stablecoin is a cryptocurrency created to hold a stable value while leveraging other features of ordinary crypto. Stablecoin developers peg the token value to that of an asset with a stable price to achieve value stability. The stablecoin may be pegged to fiat currency like the Euro, US Dollar, Sterling Pound, or precious metal assets like gold and silver. So, the value of the stablecoin maintains equivalence to the pegging asset.


Investing in Crypto with Stablecoins

Today, stablecoins are essential components of decentralized finance, commonly known as DeFi. DeFi services allow users to lend, borrow, swap, or stake tokens, among other functions, without going through an intermediary. Stablecoins have become popular tokens for DeFi users looking to secure the value of their assets from crypto market volatility.

Top stablecoins include Tether (USDT), Binance USD (BUSD), DAI, and USD Coin (USDC). Coin trackers like CoinMarketCap and CoinGecko show that these tokens have huge crypto market capitalization, suggesting significantly high trading volume. While you may use regular cryptocurrencies for most investing activities, deploying stablecoins for storing the assets will cushion your investments from market fluctuations.

When you decide to hold stablecoins, ensure the token you select is secure and transparently backed by real-world assets. Each stablecoin has a unique model for maintaining price stability, and not all coins have held up as promised. To illustrate, USDC is backed 1-to-1 with the US Dollar, held in reserves. Another stablecoin, Tether Gold (XAUT), is backed by physical gold. Others with questionable backing, like terraUSD, collapsed to near $0 in May 2022, wiping out users’ entire investments.


What to Do with Stablecoins

Primarily, stablecoins help to facilitate trades on crypto trading platforms as an alternative to fiat currency. For instance, when you want to buy DOGE, you can pay in USDC instead of the US Dollar. The stablecoins are native to the blockchain environment and will provide a more seamless trading experience. Think of them as poker chips at a casino. Also, most top exchanges have exclusive stablecoins that users will deploy, like USDC for Coinbase, BUSD for Binance, and Tether for Bitfinex.

If you are a beginner in crypto trading, stablecoins are an effective way to offset trading fees. Most crypto exchanges charge zero fees for exchanging the US Dollar for equivalent stablecoins. So, you can purchase crypto affordably or quickly liquidate your assets on the trading platform for a less volatile token. Advanced traders can deploy stablecoins to staking pools, lending, and other DeFi services to earn more revenue.

You can also deploy stablecoins to make payments and send or receive funds. Often, merchants shy away from cryptocurrencies for their erratic price behavior, which could result in lost revenues. Not so with stablecoins. The less volatile alternatives are suitable for accepting payments and simplifying international remittances. Merchants can get the best of both fiat and crypto with stablecoins while adding revenue streams for their businesses. Stablecoins also offer stability for countries with distressing inflation levels, as users deploy the tokens for purchasing products affordably.


Managing Stablecoins

You may wonder whether stablecoins are stored in bank accounts or crypto wallets. Like regular crypto, stablecoins are native to blockchains and stored in crypto wallets. This feature benefits those who cannot access banking, as users only need a device to access and manage their tokens. Also, stablecoins support P2P transfers, so users can transact at ultra-low fees on and off-chain.

Ensure you select a wallet that supports your preferred stablecoin. For instance, Ledger Waller supports DAI and USDT. Cold storage (offline wallet) will secure your assets from the inherent cyber threats in exchanges online.


Accepting Stablecoin Payments

For merchants, accepting crypto payments, specifically stablecoins, can help the business expand operations and grow revenue. With stablecoins, the venture can receive payments instantly regardless of the customer's location. This ready access to funds helps the entrepreneur to invest and improve products. For customers, stablecoins are a convenient way to pay for goods and services. You will incur minimal transaction fees and make fast transfers directly to the merchant.

To start accepting stablecoins, businesses may build a payment gateway from the ground up. Such points of sale may require deep pockets. Alternatively, you can deploy a blockchain API to connect your checkout system to the blockchain and start receiving stablecoins. A multichain API like Chaingateway.io can help merchants collect different stablecoins as payments. The blockchain API secures your payment gateway and allows you to collect payments from customers with very low fees.

In summary, here are the benefits of accepting stablecoin payments:

Easy Conversion: Liquidating your stablecoins to the fiat currency equivalents is simple and costs almost nothing. And you can be sure that the tokens hold a stable value by the time you are converting them for fiat.

Secure and Anonymous: Like crypto, stablecoin transactions are a good offering for consumers who prioritize their privacy. Underlying blockchains do not require the sensitive personal information to complete transactions. Still, the tokens leverage blockchain features to secure network transactions.

Fast Transfers: International fund transfers could take days to complete. In today’s global economy, the delayed processing of funds slows down activities, resulting in backlogs and other inefficiencies, especially in the supply chain sector.

Predictability: All investments carry risks, and crypto trading is no different – if not riskier. But users with low-risk appetites will seek investments that have more predictable trends to buy into. While entrepreneurs aim to tap into the crypto market, they also need tokens that will have steady value. And stablecoins get the job done for traders and merchants. If you own a business, you can accept BTC, ETH, or even XRP and then liquidate the crypto for stablecoins. This way, you will ensure a stable store of value.


Key Takeaway

Cryptocurrency prices are barely predictable, and risk-takers can leverage this trend to earn a fortune. If you can't stomach the erratic fluctuations, a more reserved-yet-functional token can shield you from the crypto market chaos. Such a token has its value pegged to an asset to sustain its value.

Stablecoins backed by cash reserves or precious metals like physical gold have more robust and transparent pegging. Other pegging systems include algorithms and crypto backing. Businesses can confidently accept crypto payments without worrying about volatility. And integrating stablecoin payments is simple – just deploy a blockchain API to your payment gateway to get started. These tokens complement regular crypto to offer a smoother trading experience too.




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