Since the meltdown of UST and LUNA, more people are paying more attention to the fact that “stablecoins” encompass a group of cryptocurrencies that maintain their value in different ways. Here's what you need to know about fiat-backed stablecoins:
. Instead of converting those cryptocurrencies to fiat currency, you can liquidate your digital assets into stablecoins and keep it easily accessible to re-buy into the same or other cryptocurrencies when you feel the time is right.Stablecoins are generally categorized into four different types: fiat-backed, commodity-backed, cryptocurrency-backed and algorithmic stablecoins.
The most popular types of stablecoins are"fiat-backed" meaning they are digital assets that have financial reserves in fiat currency held by a regulated institution like a traditional bank. In short, compared to its three other counterparts, fiat-backed stablecoins are truly backed by real-world currencies. These coins can be used to purchase goods and services online, just like any other cryptocurrency.
Unlike other cryptocurrencies, a stablecoin's value is tied to the price of the underlying asset, and not supply and demand. For example, 1 tether should always be worth $1, though market conditions can make it fluctuate slightly in reality. This makes them a more reliable form of currency for payments than other forms of cryptocurrency.To purchase fiat-backed stablecoins, investors need to exchange their fiat currencies or other cryptocurrencies for them.
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