Billions were wiped off the trending cryptocurrency market in late May when multimillionaire Elon Musk announced that Tesla would back out of its promise of accepting BTC payments. China’s cryptocurrency and stablecoin crackdowns, which were imposed by View Premier Liu He, further intensified the situation, prompting the entire market to crash to this year’s all-time low.
The bloody sell-off of cryptocurrency was an emotional disaster that caused newly-crowned crypto millionaires to lose their titles and small-scale investors to lose it all—but it had come unsurprising, given the extreme volatility and unpredictability of the market.
Amid the crisis, some coins remained out of the red zone. Stable and anchored coins are altcoins pegged to an external value—usually the USD or equivalent assets. These assets make up a pool of funds that physically back each stablecoin, allowing them to retain their value despite a rising or falling cryptocurrency market.
Thus, the only way for their price to drastically change is when the pegged asset is colossally impacted. However, due to the relative stability of the fiat market, stable and anchored coins don’t usually move past minor adjustments.
Uses & Benefits of Stable & Anchored Coins
While most see cryptocurrency as digital gold, digital assets—including the likes of Bitcoin and Ethereum—were created as a decentralized, peer-to-peer medium of exchange that allows users to transact without third-party limitations.
Over the years, this idea has since become skewed: crypto has become an investment product that’s expected to gain and lose value over time. The speculative nature of traditional cryptocurrencies makes them unfavorable for daily use, as an unstable value means an unstable buying power. Hence, there would be no clear way to determine your ability to afford goods and services, especially given how coin prices can wildly change within seconds.
In contrast, stable and anchored coins gain value through the asset they’re pegged to—something that doesn’t fluctuate on the same wavelength as traditional cryptocurrency. For instance, while the USD may go up and down in small adjustments, the exchange rates don’t vary to a point where a cup of coffee from your favourite cafe updates prices every day. And in a world looking for a solution to cumbersome fiat transactions, stable assets are pertinent in bringing digital finance forward.
One of the biggest advantages to coins with a stable value is their adaptability. Without price fluctuations spooking you every few minutes, buying and selling goods and services in exchange for cryptocurrency isn’t a nerve-wracking affair—you know your coins won’t suddenly change your buying power, even in the long term. They essentially leverage the best of crypto and fiat currencies, brought together to form transparent, secure, immutable, and stable assets, paving the way for widespread adoption down the line.
Another massive benefit to owning stable coins is their ability to act as a hedge against the volatile crypto market without leaving the ecosystem. For instance, say you own BTC valued at $40,000 each. News breaks out about tightening government regulations, and you’re afraid the coins will start losing value.
However, withdrawing them all will incur fees that can result in a loss of profit, and going back into the crypto game will require you to shell out buying fees again. A solution is to swap the BTC for a stablecoin, such as Tether (USDT). This process allows you to retain the value of your wealth without letting fiat money and fees get in the way.
Similarly, stablecoins can be used as mediators between coin swaps to help you incur as little gas fees as possible.
Here’s The Catch: Not All Stablecoins Are Fool-Proof
Stablecoins gain value by being backed by a stable asset, such as dollars. However, newer players have been experimenting with non-traditional reserves, such as algorithm, commodity, and even crypto-based stablecoins, putting into question their ability to retain fluctuation-free over a long period.
A prime example for a stablecoin-gone-wrong is IRON, a partially collateralised stablecoin backed by two cryptocurrency reserves: 75% TITAN and 25% USDC. By using a complex algorithm, developers were able to stabilise IRON’s price to match the USD, despite mostly being backed by TITAN, which isn’t a stable token.
TITAN, short for the Iron Titanium Token, was favoured by Shark Tank billionaire investor Mark Cuban for its liquidity benefits, but recently, the market was spooked when the token spiked to $65 before pulling back to $60. This small dip caused chaos amongst investors, forcing TITAN to lose all its value—down to $0—within two days.
So while the stablecoin market has relatively been reliable, it’s still important to analyse each token to ensure that it’s doing its job as a cryptocurrency without volatility.
Most Promising Stable & Anchored Coins
While some stablecoins have been washed away by the battlefield, many classics and new players are making waves, keeping their pegged value stable despite the otherwise bloody crypto market.
Tether is one of the most popular stablecoins on the market due to its tenure and reliability. The coin was created as a substitute currency that can be easily converted into fiat money or any other global currency when necessary, minus charging transaction fees.
While the company has had its fair share of scandals, USDT has remained at the top of the charts—it’s one of the most popular coins used as a hedge among investors and active traders. Each USDT is expected to be valued at a 1:1 ratio with the USD—and it’s currently sitting within expectations at $1 each!
The People’s Reserve (TPR)
The People’s Reserve is an anchored coin pegged to the last highest price of gold. This means that even if gold were to decrease in value, TPR will not, as its value is locked wherever gold peaks. While this feat is partially achieved through a complex algorithm, the tokens are also backed by a fiat reserve in USD, granting it the credibility to maintain a legitimate value.
Paxos Standard (PAX)
Paxos Standard is a stablecoin pegged to the USD. It’s built on top of NASDAQ’s blockchain-based financial framework, which significantly increases its stability and security—as well as this coin’s reliability among investors. In addition, it was built to move fast regardless of time and place, making it a useable currency—not just a speculative store of value. As a result, this coin has made waves this year, with investor interest pouring into a stable recourse from the market’s volatility.
While stable and anchored coins are significantly safer than traditional coins, it’s important to know that they’re not completely risk-free. Since these assets heavily rely on their fiat backing to retain value, it’s important for the responsible institutions to ensure that those pools exist—otherwise, coins in circulation would essentially be null. It’s a consideration to make before choosing to commit to a particular stablecoin!