What Strategies Make the Coin More Stable?

In usual cryptocurrency trading, the traders commonly use stablecoins such as USDT and USDC (USD Coin) (USD Coin and DAI. There are few stablecoins in the market, but most can dissolve the upheavals in the crypto market cycles. The rampant bull run of 2020 and 2021 brought major people to ride the bandwagon of crypto, to the moon race. From crypto pump chants to the dump and slump woes all turned into a swirl of to rely on and keep the portfolio be added with stablecoins too. 

Traders kept all the cryptocurrencies in different baskets, but when the market traveled downwards, the investors panicked, and paper hands sold their assets in fear. FOMO converted into FUD and the crypto winter subsided. We are not sure when the crypto siesta will recover as it requires detailed analysis and foreboding, but we can be sure about the crypto market stablecoins and their performance during all this time. As the market reached its extensive low, the stablecoins showed clear indications and proved onerous and stable throughout. As the market showed extreme volatility there was an immediate need to place and put the money on the stablecoins list. 

But, as we place our trust in God and then with the stablecoins, some factors play a key role in making the crypto stablecoins, stable. We lay some postulations that why it is beneficial to invest in stablecoins and what are the stablecoins present in the market. Alongside, the adrenaline-inducing crypto market pinpointed the complex strategies that are needed in the complex crypto trading pairs as well as which stablecoin was most outstanding, among others.

The Need for Stablecoins

Before the market recovers from a long catnap, a dire need to look and explore safe investment zones is essential. Bitcoin or other altcoins are inherently volatile and carry the risk to take you from rags to riches and riches to rags. As the element of market volatility is so inescapable and persistent crypto maestros and investors now rely upon stablecoins as the safest digital asset. Why invest in stablecoins and make them the standard for investment for the next crypto bear market? From the historical charts and figures, the best crypto investment strategy is to put a dollop of your investable funds in stablecoins and currencies. Not only do they absorb the market shocks but are backed up by US dollars and pegged against currencies. In the market, the popular ones are USDT, BNB, and USDC, which carry a high buying and selling volume and are used in peer-to-peer settings. Not just this, but these stablecoins conduct regular audits and hold their values close to the dollar.

Types of Stablecoins

There are multiple types of the stablecoins present, while their pegging and relation with USD define, how they perform. By the name, stablecoins seem like the safest mode of investment but, the method and technology at the backend make its value noteworthy. Stablecoins such as USDT and USDC make them the safest mode of investment, but how would we be able to determine and decide which among them is the best and in which one we should be investing? Other than this, the major facets of creating stablecoins are in what weightage and what can happen if those support points and factors deviate. We have two types of major stablecoins, a simple stablecoin, and an algorithmic stablecoin. It is therefore important to analyze and then decide which stablecoin works best and which one can be a good buffer against market waves and crashes. It varies from trader to trader how much risk-bearing capacity they hold and how much can be tolerated against the pumps and dumps in action.

Fiat Pegged Stablecoins

The fiat-pegged stablecoins are always backed by fiat currency and gold as a reserve on its back end. Stablecoins can be pegged to any fiat currency and hence automatically gains stability. Therefore, if we talk about less volatility and more stability, USDT and USDC are the best choices to go with.

Commodity Pegged Stablecoins

If some stablecoins can be pegged against fiat currencies, numerous others are pegged against commodities such as gold, index funds, and multiple commodity groups. Some of them are Asia Broadband, Tether Gold, Australia Perth Mint’s Gold, and DIGau also known as Dignity Gold. There are several others on the list which are backed by gold such as SwissRealCoin, and Tiberius. You can get gold in return or exchange while SwissRealCoin and Tiberius are backed as a combination of seven precious metals.

Crypto Pegged Stablecoins

As in the case of fiat and metals, there are some stablecoins in the market that are pegged with other cryptocurrencies. Crypto-pegged coins are backed by a fiat currency, let us assume pounds while the reserves are held in cryptocurrencies. It is backed by one pound but has some cryptocurrency in its base as reserves. To maintain the stability of the coin the reserves of the cryptocurrencies must be by and larger than the value of the fiat currency. For example, if the value of the BTC drops as kept in reserve, the BTC reserves should be kept more to stabilize the issued coin and the issuer can buy back all the coins. Maker’s DAI works like this. DAI is an algorithmic stablecoin as well but has been pegged to USD and reserves are constituting Ethereum smart contracts. Maker DAO always keeps a mix of several currencies such as COMP, USDC, and BAT tokens in its reserve. 

The collateralized assets can be liquidized in case the value of DAI decreases. In this case, DAI is lent against Ethereum-based cryptocurrencies. And users can take DAI by giving Ethereum and use DAI as stablecoin or cryptocurrency. In case the value of Ethereum is dropped, the Ethereum kept as a reserve would be liquidated and therefore the amount kept as collateral is always more than borrowed. The DAO protocol always makes sure that your Ethereum collaterals are not liquidated immediately and there is always some extra margin kept keeping the work smooth. DAI works as a funding mechanism without selling your cryptocurrency. Investing using Defi is a widespread practice in a decentralized form of finance.