What Are Stable Coin? [ 3 Points & 2 Min Read ]
Considering the growth of market cap of the number 4 crypto coin, everyone must be curious of what exactly is Tether (USDT) coin is. What are its fundamentals? And most of all, why is it trading at such a high right now?
To understand the purpose of Tether, users first have to understand the concept of Stable Coins. Stable coins can be thought of as a representation of cryptocurrency in the form of Fiat currency, except that it is not exactly hard cash.
For a transaction to occur, users requires cryptocurrencies, and the type of cryptocurrency required will depend on the type of transaction, the blockchain involved and the platform for most of the part. Now consider that you 100 Ether (ETH) and you need 20 Binance coins (BNB) for a transaction. How you gonna do that?
The noob answer will be converting Ether to Fiat and then converting Fiat to BNB coin. However the problem with that is that it involves additional charges like the transaction charges put on by exchanges and the financial institutions like the banks. Also this adds in a factor of wastage of time in this process, which is very important factor to consider in a volatile market as that of the cryptocurrency.
This is where stable coins come. Stable coins are the coins whose values are pegged to an asset class, like gold, silver, or fiat currency like the US Dollar, Indian Rupees, or any other such asset. So, instead, users can convert ETH to a stable coin, in our case USDT which is pegged to the value of 1 US dollar, and then convert the stable coin (USDT) to Binance Coin (BNB). This can be done directly through the exchange without investing a lot of time and money in the form of transaction charges.