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September 10, 2024
What are the differences between stablecoins and highly fluctuating cryptocurrencies?
Cryptocurrencies are diverse and complex, with different types of digital currencies that each have their own unique characteristics. In this blog, we will discuss two main categories: stablecoins and highly fluctuating cryptocurrencies. We explain what they are, what the main differences are, and why stablecoins like USDT (Tether) are used.
What are stablecoins?
Stablecoins are a type of cryptocurrency designed to maintain a stable value. They are usually tied to something like the dollar, gold or another fiat currency, making them less volatile than Bitcoin or Ethereum. There are three main types:
- Fiat-linked: These stablecoins are linked to fiat currencies such as the dollar. For example, 1 USDT (Tether) is always meant to be equal to 1 USD.
- Commodity-linked: These are linked to physical commodities such as gold or silver, which is a way to capture value digitally.
- Crypto-supported: These stablecoins are backed by other cryptocurrencies. They often have more collateral than the value of the stablecoin itself to ensure stability.
What are highly fluctuating cryptocurrencies?
Highly fluctuating Cryptocurrencies are digital currencies that use cryptography for security and operate independently of central banks. They are based on blockchain technology, a type of digital ledger in which transactions are recorded in blocks. Well-known examples are Bitcoin, Ethereum, Litecoin and Ripple. Features of highly fluctuating cryptocurrencies are:
- Decentralization: They are not managed by a central authority such as a bank.
- Limited supply: Many cryptocurrencies have a maximum number that will ever be available.
- Volatility: The value can rise or fall quickly, making them attractive but also risky for investors.
They are used for investments, payments or to transfer value without the intervention of traditional financial institutions.
Key differences between highly fluctuating cryptocurrencies and stablecoins
Although both highly fluctuating cryptocurrencies and stablecoins are digital currencies using blockchain technology, there are key differences between the two:
Volatility vs. stability
Highly fluctuating cryptocurrencies: As mentioned earlier, highly fluctuating cryptocurrencies tend to be highly volatile. Their value can fluctuate widely, which can lead to significant gains or losses for investors.
Stablecoins: Stablecoins are designed to remain stable. They are linked to an underlying asset, meaning their price barely fluctuates, making them more reliable for daily use or as a store of value.
Use scenarios
Highly fluctuating cryptocurrencies: Due to their volatility, highly fluctuating cryptocurrencies are often used as speculative assets. Investors buy and sell them in hopes of profiting from price increases. In addition, they are sometimes used for cross-border payments or as a way to circumvent fiat currencies.
Stablecoins: Stablecoins are often used for daily transactions, as a hedge against volatile markets, or as a store of value. They are also widely used on crypto exchanges as a way to capture profits without the need to convert back to fiat currency.
Acceptance and regulation
Highly fluctuating cryptocurrencies: Because they are decentralized and can often be used anonymously, highly fluctuating cryptocurrencies are sometimes associated with illegal activity. Regulators around the world are trying to find ways to monitor and regulate these markets.
Stablecoins: Stablecoins are generally seen as safer and less risky, which may lead to wider acceptance by businesses and financial institutions. However, they are also under the scrutiny of regulators, mainly because of their potential to disrupt traditional financial systems.
Why are stablecoins such as USDT used?
Stablecoins such as USDT are often used because of their stability and simplicity in value transfer. USDT, for example, is pegged to the U.S. dollar and therefore maintains a constant value of about 1 USD. This makes it ideal for transactions and investments because it avoids the volatility of other cryptocurrencies.
Yieldfund uses USDT to transfer investments from wallet to wallet to take advantage of this stability. By using USDT, they can transfer the value of investments accurately and without large fluctuations. This ensures that investment can be moved safely and effectively without unexpected losses due to price fluctuations. It provides a reliable way to manage and move funds within the cryptocurrency environment.
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Disclaimer: The content of this article do not constitute financial or investment advice.
Yieldfund's last trades
AAVEUSDT
Short
+5.47%*
Entry price
98.2800
Exit price
97.7200
AAVEUSDT
Short
+5.43%*
Entry price
97.7800
Exit price
97.2200
GALAUSDT
Short
+5.88%*
Entry price
0.0168
Exit price
0.0167