Choosing Stablecoin
There are quite a few stable coins, stablecoins and the difference is in the type of assets they are tied to. The following variations can be distinguished:
- Stablecoins “tethered” to a specific fiat currency. The U.S. dollar is the most common. But even the company behind the biggest stabelcoin, Tether, has digital coins that are tied to the euro, the Mexican peso, and the Chinese yuan.
- There are stabelcoins backed by certain commodities. For example, precious metals – most often gold. Among such cryptocurrencies are Tether Gold (xAUT), Pax Gold (PAXG), Gold Coin (GLC).
- There are stabelcoins backed by other cryptocurrencies. The most famous of such stablecoins is DAI.
- Algorithmic Stablecoins – variety, in fact, does not have any direct “collateral”. The mechanism is based on embedded pricing algorithms (often artificially influencing the issue on the background of demand changes). This was the case with the notorious Terra (LUNA), which collapsed in 2022. Among the coins in demand in 2023 are Frax and Ampleforth.
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Read more about specific projects and the risks of investing in an earlier piece from Bits.Media;
Once you’ve decided what kind of stabelcoin you need, it’s worth thinking about where to buy.
Where to buy stablcoin
Most popular cryptocurrencies are available for purchase on cryptocurrency exchanges. An exchange should be chosen based on its reputation, reviews, jurisdiction and regulation, your personal preferences, geographic location, availability of a particular coin, liquidity, reliability and security of the site.
It’s better to work with platforms that have been around for a long time. As a rule, there are many cryptocurrencies traded on such sites, including stabelcoins. More often than others USDT or USDC. Cryptoexchanges like Coinbase, Binance, Bitstamp are considered as platforms with long history and established reputation. This, however, is not a guarantee that nothing will happen to such centralized sites (CEX) and they will not go bankrupt;(remember the story with FTX). Even with such risks, there are other nuances.
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First, there are crypto-exchanges that are blocked in certain regions. For example, amid economic sanctions and reputational costs, many platforms stopped working with Russia. Depending on your region and jurisdiction, it is worthwhile to research the list of available exchanges beforehand.
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Second, make sure that the desired stabelcoin is traded on a specific cryptocurrency exchange. Of course, if a coin is popular, it will be available almost anywhere. Another thing is if you need some exotic coin. Then the site will have to be looked for in a targeted way.
If you’ve chosen a crypto exchange, then create an account there, get verified, make money and buy the stabelcoin you need. Such a scheme would be in operation at centralized sites (CEX).
Stablecoins can also be purchased on decentralized marketplaces. But the process will be a bit more complicated there, especially for a beginner. Since DEX does not store end-user money, and transactions are made through smart contracts and connected balances, verification will not be required. However, you may need some cryptocurrency on hand for further exchange into the token you need (often within the same blockchain). Because many stabelcoins are technically based on other blockchains, it is also worth considering the format of the coin token;
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For example, Tether’s USDT is based on ERC-20 (Ethereum) and TRC-20 (Tron) among others, hence transactions would require a native coin of the underlying blockchain, such as TRX in the case of TRC-20.
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There are methods of buying such as buying from cryptocurrency exchanges and directly from hand-to-hand sellers. These two methods are less transparent. You can simply be cheated out of your money. But there is a big advantage: the buyer and seller can hide their identity.
Interest on Stablecoins
If you already have stabelcoins, instead of just keeping them in your wallet, you can earn interest. Like a bank deposit, at the end of which you can get more than originally due. How do you do it with stabelcoins?
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The first option is to put your stabelcoins on some cryptolanding platform. Like with the deposit: you give stabelcoins to the platform for a while, then you get a percentage from it. Not all coins will be accepted for deposit. As a rule, platforms offer clients to earn only on the most popular tokens. And no one cancelled the risk of losing the coins as a result of fraud.
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The second option: give your stabelcoins to some liquidity pool, earning through pharming. But again, it is worth looking for a specific pool of liquidity within which your stabelcoin will circulate.
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Another option to get more cryptocurrency is to let it into staking. You will provide your Stablecoins to keep the network running (which is inherent in PoS consensus networks). It will take some time, and there will be a reward waiting for you at the end.
You can also open savings accounts on cryptocurrencies. This method is similar to the first one, when you transfer Stablecoins to cryptolanding platforms. Only here everything is even more convenient, because it takes place inside the exchange.
These four methods will allow you to get new stabelcoins without having to buy them directly. It should be emphasized that you can’t do this with any tokens, but only those for which a particular exchange offers such services.
Thus, stabelcoins as well as any other cryptocurrencies can be bought on exchanges, from hands and in cryptocurrency exchanges. Having some amount of tokens in hand, they can be used to make a passive income.