What are Stablecoins? Generate Passive Income from Stablecoin this Crypto Winters.
The best part of crypto autumn and winters are you’ll get ample opportunity to create wealth. But sitting on a pile of cash and seeing your wealth eroding with time is very painful.
What to do?
The simple answer is to convert your fiat into stablecoins and lookout for earning opportunities to preserve your wealth.
Stablecoins are safe? What are the decent options to pick?
We all have witnessed the de-pegging event of luna/ust. The event caused a major setback in the crypto industry. The fall of one of the biggest crypto stablecoins has made everyone anxious about putting money in stablecoin.
The growth of Stablecoins has made it more difficult for investors to park their money for the short term and earn interest on it.
Here are the top 5 ways to identify the best stablecoin while parking your hard-earned money.
- Market cap and Volume
If a Stablecoin has a huge market cap and high volume, that implies people are trusting and using that coin in everyday transactions. You can also look for availability on the major cryptocurrency exchange. The number of pairs available is also an important metric.
2. Transparency and Audits:
If you’re looking, to convert your fiat into Stablecoins, always check for backing and audits. Is a particular asset able to pass all the audits? Does it have proper backing to support the price action? If you find any loopholes, stay away from them. It’s better to secure your principle than looking for extra yield.
3. Type of Stablecoin:
Currently, there are 4 different types of stable that are prevalent in the crypto market
- Algorithmic Stablecoin: Algorithmic stablecoins use smart contracts and specific algorithms to regulate the token supply. The fact that algorithmic stablecoins have no reserves at all. As the supply, demand, and target price are all controlled by the code, algorithmic stablecoin is an example of what real decentralization looks like since there are no regulatory agencies to maintain or monitor the processes. An example of an algorithmic-backed stablecoin is Frax.
- Commodity-back stablecoin: Commodity-backed stablecoins simply exert ownership over a physical object with real value. Generally speaking, commodities have the potential to increase in value over time. As a result, these stablecoin varieties typically provide higher incentives for holders and users of commodity-backed stablecoins. An example of a commodity-backed stablecoin is Paxos Gold (PAXG).
- Fiat-backed stablecoin (off-chain): Fiat-backed stablecoins are the most basic sort of stablecoin, with a 1:1 ratio backing. The 1:1 ratio suggests that one stablecoin is equivalent to one unit of currency, such as one dollar. Examples of some fiat-backed stablecoins are BUSD and USDC.
- Crypto-backed stablecoin (on-chain): Stablecoins backed by cryptocurrencies (usually ETH) rather than fiat currencies are known as crypto-baked stablecoins. Crypto-backed stables employ smart contracts to safeguard assets as collateral rather than depending on a central issuer to store the reserve. An example of a crypto-backed stablecoin is DAI.
4. Yield and Use cases:
If you’re transitioning your fiat into a stablecoin, look out for the use case and yield you can generate while hopping on different Defi protocols. Always check from where the yield is coming. Yield and Usecase will let you know how much the community and builders trust this stablecoin.
5. Risks and Regulation:
There is presently no significant regulation of stablecoins. While some issuers have state licenses, these impose minimal requirements. Issuers are not required by any standards to safeguard reserves or preserve liquidity. Always check for risks associated with it, precisely for algorithmic stablecoins. Check out whether the stablecoin is according to SEC regulations or not.
There is a lot of opportunity in the Defi sector, need a decent understanding of a few concepts, and you’re good to go.