Stablecoins: The Importance of Discovering a Stable Asset That Can Withstand a Crash in the Crypto Market

The stability of a stablecoin is largely dependent on the backing or support of that stablecoin. The markets have been volatile, and it has the people that are interested in bitcoin and ethereum in a frenzy trying to sell off their cryptos for money, and the lesson in there for crypto traders is that a stablecoin depends on its backing for stability.

The Fall of Stablecoins 

Before the volatile markets, stablecoins were the go-to places for the people interested in cryptocurrencies, and they have found out that the assets are not as stable as they were thought to be. The backings of stablecoins have always come from fiat money, and for this reason, they maintained their peg to the dollar while the cryptocurrencies that are collateralized like SAI has staggered and has become undercollateralized.

Seeking out a new stable asset

So much money that ran into the billions of dollars has been lost since bitcoin fell to almost four thousand dollars, and this has informed a lot of decisions and perspectives in the crypto financial market. The major lesson that this situation has taught most traders is that they cannot rely on every stablecoin out there. They have been able to figure out which of the stablecoins that they can depend on to store and retain their value. In a bid to figure out how to store value, they have tried and tested other alternative financial assets that seem to have the capacity to support a stable price and maintain a decent profit.

Traders through a cycle of trials and tests have figured out that stablecoins that are backed by cryptocurrencies are perhaps the way to go until it no longer works. When situations are dire, there are assets that will stagger and fold while there assets that will stand the test of trying times. An example of an asset that will weather the storms is Tether, which is surprising as it is considered flawed by traders. In light of new realizations, traders have learned to trust Tether because of its reserves in fiat. They would depend more on Tether than they would trust bitcoin because of bitcoin’s record volatility within the past years.

There is a rising need, and the quest for an alternative asset has already begun because the financial community cannot depend on just one stablecoin to store value when the situation of the market is critical. The way to go is to discover assets that do not lose their value when the market is stormy. The stability of stablecoins will remain a source of concern to traders until a solution is discovered

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