What is stablecoin?
Stablecoins/tokens are cryptocurrencies mainly backed by USD. Without going into technicalities, in simple terms, they are tokenised (like a wrapped token) versions of US Dollars. These coins aren’t regulated by Central Banks, but ‘some’ are audited by credible institutions regularly. Worth mentioning that these tokens are not 100% aligned with USD (referred to as ‘pegged’) at any given time, as with the market volatility, these tokens could be +/- 1 % out of range. Regardless, currently, they are an ideal option to stabilise your portfolio when the crypto market is more volatile than usual.
The primary purpose of stablecoins is to play a ‘hedging’ role when you want to take profit (or cut your losses) from another crypto investment without exchanging your crypto assets back to fiat currency (more suited for medium-term traders).
The most popular stablecoins/tokens are USDT, USDC and BUSD, which are available in most popular blockchains.
DAI and PAX are also popular amongst big investors as these tokens more accurately aligned with the USD.
In addition, there are Gold pegged tokens like PAXG, which are also used as hedging when the market is too volatile. There are other commodity pegged (mainly to Gold) tokens, please do your own research.
