Let’s be honest, one of the reasons why cryptocurrencies are hot is because they offer the chance to earn a lot of money thanks to their price increase.
Bitcoin and Ether are the perfect examples. A few years ago they were worth less than a penny, today one Bitcoin is worth thousands of dollars.
But, as their prices skyrocket, it also crashes dramatically, so they have the potential to create millionaires and, at the same time, take people to bankruptcy.
Clearly, the once revolutionary assets for saving money became a high volatility option.
Fortunately, the crypto community knows how to solve problems using creativity, wit, and blockchain technology. This made possible the rise of stablecoins, a type of cryptocurrency whose price is more stable and protects investors from the abrupt price fall of the rest of cryptocurrencies.
Now, thanks to El Dorado, is possible to buy and sell stablecoins using fiat money. Wait… Don´t know what is this type of cryptocurrencies and why you should use them to save money? Ok, let us explain everything you need to know before you start to save with stablecoins.
What are stablecoins?
Stablecoins are tokens designed to have a stable price, by being pegged to an asset such as a cryptocurrency, fiat currency -typically Dollars or Euros- or a commodity like gold.
The goal is to protect investors from the typical volatility of cryptocurrencies.
Commonly known as digital dollars or euros, stablecoins become the perfect choice to save money when you live in a country with economic problems like inflation, and devaluation.
Also, its use provides accessibility to cryptocurrencies known as altcoins. Before stablecoins, people looking for altcoins only had the option of buying them using Bitcoin or international debit cards, of course, that situation created two big problems:
- People bought Bitcoin to invest in altcoins, losing their investment if the Bitcoin price fell at the moment of buying or selling the altcoins.
- Those without an international bank account faced restrictions to buy altcoins.
Thanks to stablecoins, people can protect their investments and have access to a wide variety of cryptocurrencies.
Types of stablecoins
A lot of people panicked after Luna fell with Terra, because the goal of maintaining the price stable failed. Leading users to the question, is it all bullshit, and are these crypto assets designed to fail?
Well, before running away from stablecoins, like some people, you should know that there are different types of stablecoins and their stability depends on different criteria.
So, while some people were losing all their savings, others just enjoyed another day in the crypto world because their money was invested in cryptocurrencies such as Celo dollars -cUSD- or Tether -USDT-
Here is a brief explanation of the types of stablecoins and which are the best for saving.
These are the ones backed by external assets like fiat currencies, cryptocurrencies, or any other assets. There are different categories of collateralized stablecoins.
- 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.
These are stablecoins that are not collateralized by fiat money or cryptocurrencies. Instead, their price stability results from using specialized mathematical methods that pegged the price to the 1:1 parity of a fiat currency.
Smart contracts and algorithms are used to control the blockchain, avoiding the volatility of the stablecoin.
These algorithms are designed to analyze, reduce or increase the number of tokens in circulation, according to the behavior of the market.
Precisely, Terra belongs to this category, and also failed projects as basis. So, this kind of stablecoins has a higher risk, because the algorithm sometimes makes wrong “decisions’ ‘.
These stablecoins are backed with assets, and also use algorithms to keep the price pegged to a fiat currency. In this category, we find cUSD, a stablecoin that works as a digital Dollar and keeps the price stable by combining central banks seigniory, and the back of a reserve of Celo Gold, Bitcoin, and Ether.
Why is not enough to save using fiat money?
Now, you know the basics of stablecoins, but maybe you are still thinking, why shouldn´t I use fiat money? The answer to this question is relatively easy, savings on traditional currencies provide benefits, but also have the typical disadvantages of the traditional banking system.
- 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.
Because of this, stablecoins have become an alternative to saving money without using the traditional bank system. That means keeping your money protected against inflation, devaluation, and high rates and fees.
Also, you can build capital to invest in other cryptocurrencies.
Do you want to start saving and protect your financial status? At El Dorado, you can use local currencies to get access to digital Dollars and Euros using cUSD, and cEUR. To join El Dorado you just need a smartphone and to create your account.
Sign up, complete the identity and save money on Dollars and Euros to achieve your financial goals.