Trading isn’t the only way to make a return on your crypto investment—you can also stake stablecoins. Good interest rates are up for grabs if you know which crypto platforms to put your money into. If you’ve got some extra stablecoins in your portfolio, earning interest from them could turn into a dependable source of passive income.
If you own any stablecoins like Tether, the Gemini Dollar, or the USD Coin, then you can start earning interest on your holdings. The stablecoins list goes on, as there are many different types of stablecoins available, so make sure to check out all of your options before deciding which one is right for you. In this article, we will walk you through the basics of stablecoins and the way you can earn through them.
What Are Stablecoins?
A stablecoin is a cryptocurrency that has its price backed or pegged to another asset in order to make it steady and avoid any type of fluctuation. These assets can be other cryptocurrencies, commodities, fiat currencies, currency baskets, and virtually anything else that holds value. In other words, stablecoins are the digital version of physical assets. The different kinds of backings correspond with different types of stablecoins which we will discuss later on in greater detail.
For those new to cryptocurrency, stablecoins are a smart choice. Stablecoins like USDT and USDC have a value of one dollar each. You’re able to earn more interest on your deposits with these coins. Also, they protect you against common volatile trends in the market.
Are Stablecoins Safe?
Stablecoins that are asset-backed are held to certain regulations, such as the MICA framework proposed by the EU. These standards guarantee compliance with global monetary laws, making stablecoins a more attractive choice for those who otherwise would not deal in cryptocurrency due to economic and/or legal risks.
Moreover, the collateral of majority stablecoins is subject to external audit as it is important to confirm that the assets securing those crypto-assets are actually present. This gives another layer of economic confidence to individuals who often use stablecoins, knowing that they can exchange their inventory back into regular currency at a secure rate.
Some people have proposed that issuers of stablecoins should be required to disclose the assets backing their coins on a monthly basis and that these reserves should be audited quarterly to ensure that there is enough backing for all the coins in circulation.
Algorithmic stablecoins are not as safe as asset-backed stablecoins because they only use a set of smart contract algorithms to try and maintain their value. If the amount of tokens available decreases too much or there isn’t enough collateral, these kinds of stablecoins can potentially drop in value compared to the dollar during periods when markets aren’t doing well.
Earn Money Through Stablecoins
Much like their tangible counterparts, stablecoins can be utilized to make an investment. The benefits and risks of such an investment are quite similar to those you would find if investing in the non-digital form of said assets. With that in mind, there are three primary ways to profit from stablecoins.
To earn interest from stablecoins, you must deposit an agreed-upon amount of stablecoins with a company. This company then uses your stablecoins to give secured loans to other parties. After the loan’s collateral is given back and the interest earned over time, you get your deposited amount of stablecoins back. By doing this, you are earning passive income while also sharing the risks that lenders endure.
Comparing Stablecoins To Bitcoin
Although stablecoins and Bitcoin both use blockchain technology, there are more differences than similarities between the two types of currency.
For instance, stablecoins value isn’t constantly changing, allowing them to be used more frequently as payment options or store values. They can be used like day-to-day cash, and they maintain value in a similar way to fiat currency and can be invested without as much risk. After all, a stablecoin’s price by definition does not fluctuate the same way as Bitcoin.
In addition, stablecoins don’t require mining as Bitcoin does; you can simply earn them by representing units of an existing asset on the blockchain. There’s also always a physical or digital asset backing up each stablecoin, so their values are consistent and reliable.
Overall, stablecoins are one of the best options for investors who want to profit from cryptocurrencies but don’t want to take on too much risk. They offer a wide range of collateralization options that fit different investment strategies and can help hedge against the risks normally associated with crypto assets. While they’re not entirely risk-free, they tend to be more financially reliable and legally safe than other kinds of cryptocurrency.