One of the main attractions of cryptocurrencies is the possibility of obtaining very high returns by investing in them. This is the case with Bitcoin and Ethereum, which initially had a price of less than a cent and, over time, have multiplied in value, reaching thousands of dollars.

However, just as they rise drastically, they can fall and crash your savings due to their high volatility. What was initially believed to be revolutionary assets for saving ended up becoming a high-risk option.

Fortunately, in the crypto community, problems are solved with creativity, ingenuity, and, of course, blockchain technology. This led to the development of stablecoins, cryptocurrencies whose price is more stable and protects both investors and savers from the sharp price drops of other cryptocurrencies.

At El Dorado, you have the opportunity to buy and sell stablecoins using fiat money. But if you still don't know what these cryptocurrencies are and why they are an excellent alternative to the traditional savings system, don't worry! Here we tell you everything you need to know before you start saving with stablecoins.

What Are Stablecoins?

They are tokens associated with other assets, allowing them to maintain a stable price. These assets can be fiat currencies like the dollar and the euro or tangible goods like gold or other cryptocurrencies. Their goal is to protect those who invest in them from the volatility of cryptocurrencies.

Also known as digital currencies, they maintain a price similar to stable fiat currencies like the dollar and the euro, becoming an alternative for saving in countries where the national currency constantly faces devaluation, inflation, and other economic obstacles.

Additionally, they guarantee greater accessibility to cryptocurrencies other than Bitcoin. Before these crypto assets were created, people who wanted to buy altcoins only had the option to buy with Bitcoin or international cards, which caused two problems:

1. The price of Bitcoin could significantly reduce when buying or selling altcoins, causing a loss in investment.
2. People without international accounts had more difficulties buying cryptocurrencies other than Bitcoin.

Thanks to stablecoins, today it is possible to protect your crypto savings and easily access a greater variety of cryptocurrencies.

Types of Stablecoins

You've probably heard about the collapse of Luna and the fall of the stablecoin linked to it, Terra. This caused panic in the community as many wondered: Aren't stablecoin prices supposed to stay stable? Is it all a lie, and are these crypto assets doomed to fail?

Before you get carried away and flee from stablecoins, it's important to know that there are different types, and their price stability depends on this. Thus, while many were losing their savings, those with their money backed by alternatives like Celo dollars (cUSD) or Tether (USDT) were as calm as any other day.

Below, we explain the main types of stablecoins.

Collateralized

These are backed by the value of an external asset, whether a fiat currency, another cryptocurrency, or other assets. There are various categories of collateralized stablecoins:

• Backed by fiat currencies: Their price is linked to stable currencies like the dollar and the euro, so their price is in parity with the currency that backs them. Tether falls into this category.
• Backed by other cryptocurrencies: Although their price does not maintain parity with the cryptocurrency backing them, they leverage these to maintain a stable price. For example, the stablecoin DAI is generated in exchange for ethers that users trade as a deposit. For this, over-collateralization is used, where a deposit with more ethers than necessary must be left, reducing the risk of losing the stability of the cryptocurrency.
• Backed by other assets: In this case, the stable value is anchored to the price of a valuable good, such as gold. Cryptos like G-Coin, whose price equals a gram of physical gold, fall into this category.

Algorithmic

These are non-collateralized stablecoins that use mathematical methods to link their price to a fiat currency through parity. For this, smart contracts are used, and the blockchain is controlled through algorithms that prevent significant price fluctuations.

These algorithms are designed to analyze and incentivize the behavior of market participants and/or control the supply to keep the price stable.

Precisely in this category is Terra, and other failed cryptocurrencies like Basis also fell into this category. This type of stablecoin usually carries a higher risk, as the algorithm becomes a double-edged sword.

Hybrid

These are stablecoins that, although backed by other assets, also use algorithms to maintain parity with the currency they are anchored to. Among them is cUSD, a stablecoin that functions as a digital dollar and maintains its price by combining an algorithm that mimics central bank seigniorage and is backed by a diversified reserve of crypto assets like Celo Gold, Bitcoin, and Ether.

Why Is Saving in Dollars Not Enough?

You already know everything about stablecoins, and even so, you may be thinking that the benefits of saving in digital dollars are similar to saving in dollars and stablecoins backed by this currency. But while saving in traditional dollars is usually safe, the reality is that doing so involves certain disadvantages linked to the traditional banking system. Here are some of them:

• It is less accessible for underbanked people: To access dollars or other currencies through the traditional banking system, it is necessary to go to an authorized bank office or exchange house, which are not available in all areas, limiting access to those living in more remote areas or less populated cities.
• Access can be restricted by governments: Sometimes, governments restrict the supply of dollars to control other aspects of the economy. This is the case in Venezuela and Argentina, where their governments have imposed controls to prevent citizens from accessing currencies. In this situation, stablecoins have been the ideal option to access dollars.
• High commissions: Buying dollars through banks involves high commissions. While buying stablecoins also requires paying commissions, these are much lower than any bank's.
• Minimum amounts that are not accessible to everyone: If you want to buy just one dollar, you will likely encounter limitations in most banks, as they will require you to buy a minimum inflexible amount. This does not happen on platforms like El Dorado, where you can buy small to large amounts of digital dollars.

For these reasons, stablecoins present an alternative to saving outside the traditional banking system, keeping you protected from problems like inflation, devaluation, and the commissions and interest banks usually charge. Additionally, they allow you to build capital to invest in other cryptocurrencies if you wish to do so in the future.

Do You Want to Start Saving and Protect Your Finances?

At El Dorado, you can access digital dollars and euros like cUSD and cEUR using your local currency. All you need is a smartphone and to create an account.

Register, verify your account, and start saving in dollars or euros to achieve your financial goals.