In a recent blog we looked at what a stablecoin is and the main types of stablecoins available. Today we’d like to look a little more closely at the benefits of stablecoin and what you need to consider if you’re thinking about investing in this new form of cryptocurrency.
According to Changpen Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, stablecoins offer not only “far more freedom than traditional fiat for users” but also a more efficient cryptocurrency that will be much less susceptible to traditional market volatility.
Experts feel stablecoin will help eliminate the current confusion around conversion rates which will give investors the certainty they have craved since cryptocurrencies first launched, certainty that could even provide the foundation that will facilitate the mass adoption of crypto and propel it into everyday use.
Stablecoin may also address the question of overly high transaction fees as, according to a recent Binance blog, there would be only be a minimal fee attached to converting US dollars to stablecoins and back. This is because the current cost associated with making wire transfers during the fiat-to-crypto conversion phase would be eliminated. To prove the point Binance has told the market that if customers use one of their 5 recommended websites to convert fiat into stablecoin to purchase other cryptocurrencies, the trading fee would be only 0.1%.
Similarly it looks likely that stablecoin could also help investors avoid any additional withdrawal fees the fiat-focused exchanges currently charge.
However, as with all cryptocurrencies there is a risk. Here are some of the factors we think you should consider before you get involved with stablecoin:
- Which currency or commodity is backing it?
- How stable is that currency or commodity?
- Does all of the supporting documentation make it absolutely clear that is how the stablecoin in question will be backed?
- Is there a credible independent guarantee confirming there is a big enough reserve of that currency or commodity to continue to back the stablecoin?
- If you are looking at a reserve backed coin, can you identify the banks involved and make a reliable risk assessment given those particular banks are involved?
- Can you see exactly who is involved in the project and can you find full work histories for each person and all of the additional professional advisers involved?
Stablecoins may look like an attractive proposition but there is still significant risks associated with investing. If you are thinking about investing in stablecoin – or in bitcoin or any other cryptocurrency – but would like to discuss those risks first, please call us today on 020 7792 5649 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..
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