Stablecoins play an important role in the cryptocurrency industry. In this article we will tell you what stablecoins are and give you examples of how to use them to your advantage.
What is stablecoin
This is a cryptocurrency whose value is tied to the value of an asset from the real world, such as fiat currencies, precious metals and oil. For example, there are stablecoins, the value of which is tied to the US dollar, euro, British pound or Russian ruble.
Stablecoins can be divided into two categories. The first category is centralized. Such stablecoins are produced by a specific company. It secures a value of the stablecoin due to the presence of fiat currency in the company’s accounts. For example, the Tether company produces USDT stablecoins and secures them with US dollars in the company’s accounts. Such companies keep strict reporting to the regulatory authorities and may block the stablecoin owners’ wallets by court order. Other examples of centralized stablecoins are USDC of the Center consortium, BUSD of Binance, EURS of Stasis.
The second category is decentralized stablecoins. They are produced by smart contracts and secured by a collateral in cryptocurrency and smart contract algorithms. The advantage of decentralized stablecoins is that they don’t have an owner company so they can’t be blocked remotely. They can also work on different cryptocurrency platforms and are only limited by the blockchain their smart contract is based on. For example, DAI stablecoins work only with projects on the Ethereum blockchain, and USDJ stablecoins work only with projects on the TRON blockchain.
This is one of the ways to earn money with the help of stablecoins. There is a DeFi trend in a blockchain industry. It consists of apps with functionality similar to traditional banking tools. One of these tools is loan. Some DeFi apps give out loans in stablecoins. For example, MakerDAO gives loans in the US dollars stablecoins DAI, and MonolithosDAO gives loans in the stablecoins of the Russian ruble MCR.
Here is an example from MonolithosDAO. If you want to take out a loan in MCR stablecoins, you will need to leave a collateral in ETH or WBTC. The amount of collateral must be greater than the loan amount by at least 25%. For example, if you want to take out a loan of 1,000 MCR, then you must leave a collateral in cryptocurrency for the amount of at least 1,250 rubles at the current rate. It is recommended to leave a collateral of more than 125% of the loan amount to protect the collateral from the volatility of cryptocurrency. If the rate drops and your collateral will be less than 125%, it will be sold at auction and will be deducted 4% of the stability fee and 7% of the liquidation fee. The rest will be returned to your wallet.
Let’s say you expect the ETH rate to grow and take out a loan in MCR secured by your ETH:
- If the rate grows, the value of the collateral in the smart contract will also increase
- If the rate drops, the collateral value will also drop. But MCR stablecoins will retain their value
- If the rate falls below the liquidation value, the collateral will be sold, and the liquidation and stability fees will be deducted from it. But you will still have MCR stablecoins, which were not affected in any way by the fall of ETH.
You can also use credit stablecoins as a leverage to buy more cryptocurrency on them. For example, you left a deposit in ETH and took a loan from MCR. Then you bought more ETH from the MCR. If ETH rises, you will earn more profit than without the leverage. For example, you took a loan of 10,000 MCR on bail 0,42 ETH at a rate of 30,000 rubles. At 10,000 MCR you bought another 0,33 ETH. Suppose that the rate of ETH increased to 35,000 rubles:
- Without a leverage, your 0,42 ETH will increase in value by 2,100 rubles
- With leverage you already have 0,75 ETH. Taking into account the stability fee 4%, your profit will be 3,250 rubles.
Using leverage increases not only profits in the case of growth of the cryptocurrency rate, but also losses in the case of its fall.
Conversion of cryptocurrency into stablecoins
This conversion has 2 applications. The first one is portfolio fixation. For example, you trade bitcoins and earn on the difference in price during the exchange. You have closed the trading day and aren’t sure that the bitcoin rate will not fall. You convert 1 BTC into USDT stablecoins and the value of your assets will not change. When you continue trading, you will convert them back at the new rate. If the bitcoin rate drops, you will get more bitcoins than you have converted. And if the rate has increased, you will get less bitcoins. In any case, the value of your assets in fiat currency will remain the same.
The second reason to convert cryptocurrency into stablecoins is to earn money on the fall of the cryptocurrency rate. For example, you expect the bitcoin rate to fall. And suppose you have converted 1 BTC to 11,000 USDT and now expect the rate to fall. When the bitcoin rate drops from $11,000 to $10,000, you convert 11,000 USDT back and get 1,1 BTC. When the bitcoin exchange rate rises again, so does the value of your assets.
Special tool on Bitzlato
Bitzlato telegram-bots have a separate tool called «2Monolith». With this tool, you can instantly convert cryptocurrency to stablecoins at the current rate of the Bitzlato exchange. The tool frees you from the need to enter the exchange, convertation happens inside the telegram-bot. Then you can convert stablecoins back to the cryptocurrency at the rate that will be relevant now.
As an example, we will show you how to convert BTC to USDT in a telegram-bot @BTC_CHANGE_BOT:
1. In the main menu of the telegram-bot, click on the button «2Monolith».
2. The bot will send the 2Monolith menu. Choose which stablecoin to convert your assets to. For example, take BTC-RUBM.
3. Select the amount you want to convert or write it in manually. For example, take 0.001 BTC. If you want to write the amount manually, press the «Other» button.
4. The bot will ask you to choose a rate at which the conversion will take place.
5. The bot will write you the amount you will receive in the stablecoins and the rate in which the conversion will take place. Click «Yes» to confirm the conversion.
6. The bot will write to you that the order will be placed on the exchange within a few seconds When it is executed, the number of stablecoins you selected will appear in your wallet. The cryptocurrency you are converting will be blocked until the order is executed.
7. To check the stablecoins balance press the «2Monolith» button again in the main bot menu. The 2Monolith menu will display the number of your stablecoins.
Stablecoins are cryptocurrencies, the value of which is equal to the value of an asset from the real world. For example, US dollar or Russian ruble. There are centralized and decentralized stablecoins. Centralized ones are issued by companies and secured by assets on their accounts. Decentralized companies issue smart contracts and provide them with cryptocurrency locked in the smart contract.
Stablecoins give users two advantages:
- Ability to fix the value of its assets in fiat currency. In this case, you don’t have to worry about falling rates.
- Ability to earn on the rise or fall of the cryptocurrency rate. You can earn on the growth of the rate of cryptocurrency with the help of loans in stablecoins. Earn on the fall of the rate of cryptocurrency can be with the function «2Monolith» in Bitzlato telegram bots.
On the Bitzlato platform you can also buy decentralized MCR ruble stablecoins or ETH cryptocurrency, with which you can take a loan in stablecoins.