Read time 8 minutes

Stablecoins: The best option for saving?

StablecoinsCryptocurrenciesSavings

What are stablecoins?

  1. People bought Bitcoin to invest in altcoins, losing their investment if the Bitcoin price fell at the moment of buying or selling the altcoins.
  2. Those without an international bank account faced restrictions to buy altcoins.

Collateralized

  • Fiat-backed: Price is pegged to a fiat currency such as Dollars or Euros. The underlying collateral is off-chain and remains in reserve. You can find Tether in this category.
  • Crypto-backed: As the name implies, these are backed by another cryptocurrency as collateral. This process occurs on-chain, using smart contracts. This type of stablecoins works by locking your cryptocurrency into a smart contract to obtain tokens of equal representative value. DAI is the most prominent stablecoin in this category, using an overcollaterization mechanism known as a collateralized debt position (CDP) via MakerDAO to secure assets as collateral on the Ethereum blockchain.
  • Commodity-backed: Are collateralized using physical assets like gold, oil, and real estate. G-coin is one of the stablecoins in this category and each token has the value of one gold gram.

Algorithmics

Hybrids

Why is not enough to save using fiat money?

  • Lack of accessibility to underbanked people: To exchange in the traditional system it is necessary to go to a bank office, which sometimes, is not available in all cities.
  • Access restricted by governments: Frequently, governments restrict cash Dollars supply to control other Economic indicators. Venezuela and Argentina are an example of this. Their governments imposed several restrictions on access to foreign exchanges, and stablecoins have become an option to get access to foreign currencies.
  • High fees: Banks and their infinite fees minimize the capability of saving, especially if you are a part of the middle class and want to buy some dollars using traditional methods. Nonetheless, you must pay fees to buy stablecoins at El Dorado, which are lower than traditional bank fees.
  • Demands minimum amounts Do you want to buy just one Dollar? That’s impossible using banks, you must buy a minimum amount. But on platforms like El Dorado, you can buy low and high amounts of digital currencies.

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