Stablecoins are a cryptocurrency category that focuses on stability. The digital asset market has high volatility, and these coins aim to offer a safe haven by maintaining a constant value. The reason for their stability is their value pegged to another asset. That could be a fiat currency, a commodity like gold, or another crypto coin.
The most common case is stablecoins connecting their value to USD. If you use the USDC calculator, you will see its worth aims to mimic the US dollar. Stablecoins are great to have in turbulent crypto times. Here are five ways you can overcome volatility crises with these coins.
Stablecoin Arbitrage Opportunities
Before we dive into how stablecoins contribute to this method, it’s important to understand how arbitrage trading works. It’s a situation where you use discrepancies of an asset price on different platforms.
Thanks to different supply and demand dynamics, the worth of the same stablecoin might vary depending on the exchange. For example, USDT might be worth $0.9998 on Platform A and $0.9997 on Platform B. Your move is to acquire the asset on Platform B and then sell it on Platform A.
Apart from using stablecoin arbitrage, these assets can help utilize arbitrage opportunities for other crypto. Let’s say you’ve noticed that Platform A offers BTC at $50K, while Platform B keeps the price at $51K. It’s possible to quickly move stablecoin assets between exchanges to make the desired trades, which speeds up the process of acting on the arbitrage opportunity once you notice it.
Stablecoin Yield Farming
Many decentralized finance platforms offer yield farming as a service. Yield farming works the same way as with other cryptocurrencies, and it’s essentially “staking” your funds for interest or rewards.
In practice, you begin by registering an account and connecting your wallet or depositing funds to the DeFi platform. Next, you pick the available program to stake your stablecoins and pick the sum. The amount gets locked for a certain amount of time, such as six months, a year, or two years. Smart contracts regulate everything, so the entire process is automatic. Once the set timeframe expires, you receive the funds back plus the specified interest.
Stablecoin yield farming is similar to savings accounts in traditional banks. The difference is the rewards are often higher, which increases your potential earnings. The advantage of staking stablecoins against other cryptocurrencies is the stability. Digital assets are volatile, but that’s not the case with stablecoins. That makes them a safer option compared to yield farming with more volatile assets. The one thing to consider is the fees involved, such as transaction or withdrawal charges, which can affect your total earnings.
Utilizing Stablecoins for Market Timing and Entry Points
You can use stablecoins to navigate through volatile times in the crypto market without exiting it. For example, let’s say that you invested in a digital currency that started losing its value. You are afraid it will continue dropping in a short time and there doesn’t seem to be another asset that’s worth adding to your portfolio.
As a protective move, you can trade the cryptocurrency you own for a stablecoin. These maintain value since their connection is with a fiat asset or commodity. Once the timing is right and you identify a suitable investment, trade the stablecoin for the desired currency — and you are good to go.
The only decision to make is which stablecoin you’ll trust. Some that have the longest tradition and the highest reputability include USDT and USDC. We recommend finding out everything about Tether and other potential alternatives and picking your favorite to be ready when the turbulent times strike.
Facilitating Automated Strategies
The crypto market is open 24/7, and even the most dedicated traders can’t monitor it around the clock. With many different assets, you might miss a currently good trading opportunity, which might not be there in 30 or 60 minutes. It’s why many resort to automated trading bots helping them to boost their portfolio and reach investment goals.
An automated bot is an algorithm that observes the market and acts according to the instructions you’ve set. You can adjust when to sell or purchase an asset, and once the bot identifies the price, it will execute the trade immediately.
Stablecoins play an important protective role in the automated trading system. You can set a parameter that converts the cryptocurrency you own into a stablecoin if it starts losing value to mitigate your losses. It’s also possible to set the conditions when to use these coins to acquire a certain asset. Stablecoins add an asset with a constant worth to the equation, which can be an immense help when building an automated trading strategy,
Streamlining Cross-Border Transactions
International fiat currency transactions can be slow and costly. If you use traditional banking methods, it can be a bit of a hassle to provide all the necessary details. The transfer could take a couple of days, depending on the destination. Specialized online money transfer services are faster but they might come with unfavorable exchange rates or large fees.
One of the main purposes of the crypto market is to simplify cross-border transactions. Stablecoins allow you to utilize the cost-efficiency and speed of transferring crypto internationally while utilizing the constant value of an asset. Instead of transferring fiat USD, paying fees, and waiting for days, you can send or receive USDT in minutes while keeping the charges low.
Another benefit of crypto international transactions is inclusion. You can transfer stablecoins to countries, areas, or individuals that are unbanked or not able to receive money through international transactions.
Summary
Stablecoins have become an integral part of the crypto market. Most people use those who have a fiat currency peg since they are looking for an asset that has a similar value to the currency they know well.
During turbulent times, experienced investors use stablecoins to preserve their investment worth. They keep their funds in stablecoin assets until the next investment opportunity arises. The role of these coins in arbitrage trading and yield farming only adds to their usefulness and versatility. If you believe that acquiring stablecoins is a good move, make sure to stick to reliable ones that have a proven track record.
