6 min read
Opinions expressed by Entrepreneur contributors are their own.
When investing in crypto, stablecoins are a necessary piece of any successful strategy. These are cryptocurrencies pegged to the dollar’s value. However, creating a legally compliant, decentralized and fair stablecoin is more complex than one might think.
Where do millennials invest?
With the Nasdaq, Dow Jones and S&P 500 all hitting all-time highs this month, you wouldn’t believe that we’re living through a pandemic and recession. However, this has everything to do with it. To get out of the Covid-19 economic crisis, governments will have to print money to save struggling sectors. In the face of a falling dollar, investing is more than a nice bonus — it is necessary to preserve wealth. With the Federal Reserve Chairman himself admitting he expects a rise in inflation, a clear message has been sent to everyone — invest your money in anything but a savings account. This message has been heard loud and clear.
Currently, one of the most exciting areas to invest is cryptocurrency. Interest has grown exponentially, leading even the world’s second-richest man, Elon Musk, to invest in Bitcoin. More than a technology, crypto (more precisely, DeFi) aims to challenge the current financial system and recreate it in a fairer, more transparent way.
As prices of real estate rise and commodities such as gold have a hard time keeping up, millennials turn their sights and savings to the fast-growing digital asset class. It’s fun, it’s easy, and it moves quickly. This has led the crypto market to cross the $1 trillion mark at the beginning of 2020. Perhaps even more impressively, the market doubled that a few weeks ago by crossing $2 trillion. The more people believe in it, the faster cryptocurrencies grow.
This has created an increasing demand for a particular type of cryptocurrency, though, one that isn’t likely to grow in value but rather provide utility and stability to the crypto market: stablecoins.
Related: 4 Ways DeFi Can Generate Passive Income
What are stablecoins?
In the simplest terms, stablecoins are cryptocurrencies tied to the value of a currency backed by government regulation and a central bank, such as the U.S. dollar. Very often, this is the currency used by stablecoin providers to guarantee the value of their cryptocurrency. But why would anyone want a cryptocurrency tied to the price of the dollar? Doesn’t that defeat the whole point of investing in cryptocurrencies?
It’s not so simple. While no crypto investor will only hold stablecoins in their portfolio, these have become a vital part of any investment strategy for many reasons. First, they’re an excellent way to transfer a set amount to another person. For example, in the case of a business contract, it’s much easier to agree on a value in…