Are you investing in cryptocurrencies? Top things you need to know about stablecoins before you put your money into them!

In the world of cryptocurrencies, where volatility is a daily occurrence, the emergence of digital assets that provide stability was only a matter of time. Imagine – Bitcoin or Ethereum, which can rise by 20% one day and fall by 30% the next. For someone who wants to store their money without the constant stress of whether their wealth will shrink by half in an hour, this can be a problem. And this is where stablecoins come in – cryptocurrencies that have been created to ensure value stability.

How does it work? Well, stablecoins, unlike classic cryptocurrencies, have one very important feature – they are tied to a specific asset that does not change its value so drastically. It can be a currency, such as the dollar, euro, or zloty. It can also be a commodity, like gold. There are even stablecoins whose value is regulated by an algorithm – imagine an intelligent code that adjusts supply and demand to keep the price at a stable level. Sounds like something from the future, right?

Take Tether, or USDT, for example. This is a stablecoin that is tied to the US dollar. It works in such a way that the issuer of Tether keeps the equivalent of the issued tokens in dollars in a special account. One USDT token is always worth about one dollar. It is a simple and quite effective solution. Thanks to this, we can send money in the form of stablecoins without worrying about volatility. It's like having digital dollars that you can send to someone on the other side of the world in a few minutes, and for pennies. Not a bad deal, right?

But not only the dollar can be the backing of a stablecoin. We have stablecoins backed by cryptocurrencies. For example, DAI. Instead of the dollar, the stablecoin is backed by Ether – a cryptocurrency that can be 'locked' in a smart contract to issue DAI. Of course, Ether is more volatile, so here we need over-collateralization. This means that for one DAI, we need to 'lock' cryptocurrencies worth more than one dollar. Complicated? A bit, but it works – all in a decentralized manner, without the need to trust a single institution.

Alright, but maybe you're interested in something more tangible that you can literally 'touch' – like gold. There is a stablecoin like PAX Gold, which is backed by gold. Each PAXG token is equivalent to one ounce of gold stored in London. Imagine – you have gold, but you don't have to worry about where to keep it because it is tokenized and recorded on the blockchain. At any moment, you can trade it on exchanges, and its value always corresponds to gold. Amazing, right?

Now, what about those algorithmic stablecoins? That's a higher level of complexity. Instead of physical reserves in currencies or gold, algorithms take care of value stability. It looks something like this: when the price of the stablecoin rises, the algorithm increases the supply, and when it falls – it decreases. The whole process happens automatically, without human intervention. Sounds like something from the future, but it's already working! Of course, there is risk – if the algorithm 'makes a mistake' or fails, the entire stability can collapse.

Okay, now the question is – why do we even need stablecoins? What are their advantages? First of all, stability. They allow you to avoid dramatic price fluctuations that are a daily occurrence in the cryptocurrency market. Secondly, they are great for trading – having stablecoins means you don't have to constantly convert your cryptocurrencies into dollars or other fiat currencies. The third advantage is that they are globally accessible. You can send stablecoins across borders without any problems, without intermediaries, for small fees.

Of course, there are also disadvantages. Stablecoins backed by fiat currencies require trust in the issuer – we have to believe that they actually have all those reserves. Remember the scandals related to Tether? Exactly. Algorithmic stablecoins, on the other hand, are risky because they rely on a technological 'brain,' and if something goes wrong, the entire stability can collapse.

In summary, stablecoins are something that has enormous potential. They combine the advantages of cryptocurrencies with something that is essential in finance – stability. But as always – there are no perfect solutions. Each type of stablecoin has its advantages, but also its pitfalls. Nevertheless, it's worth paying attention to them, as they could be the future of digital finance.