Why You Need a Calculator When Trading Stablecoins

Do you need a calculator similar to a bitcoin calculator when converting stablecoins to fiat?

Ideally, you do not. However, it is the case that you do need one.  

Stablecoins have been around for a while now. The question of whether they are achieving the goals they were designed and created for is debatable. 

More of that in a moment.

First, what is a stablecoin?

A Stablecoins is a digital asset on the blockchain that is backed by fiat currency, precious metals, or any other real-world asset. The primary function of a stablecoin is to help traders bypass the volatility that is common with cryptocurrencies while they trade online.

A stablecoin makes it possible that you can quickly move your investment from volatile assets when you think you are about to make losses. The most common stablecoins are those that are backed by the US dollar.

The exchange rate between the stablecoin and the dollar that backs it is expected to be always at 1:1.

The most important aspect of stablecoin is that the entity that issues it ensures that the ratio of 1:1 is maintained. However, that has been a source of concern, with many doubting whether this promise is always kept.

The first stablecoin that became widely used is Tether (trading under the ticker USDT). It is issued by Tether Limited, a company closely associated with the crypto exchange BitFinex.

Others in the space include TrueUSD (TUSD), Paxos Standard (PAX) and USD Coin (USD). In total, there are closer to 50 stablecoins that are used on various exchanges and trading platforms. 

But have they really kept the promise?

Indeed, Stablecoins have made it easier for traders to move their dollars around. Before stablecoins, it was a real hustle to keep up with the market as a trader, especially given the long time it still takes to deposit fiat into exchanges and trading platforms so that you can place orders.

Given the high volatility that the crypto market experiences, it was always the case that one could see an opportunity but struggle to seize it. In particular, it could take forever before you moved your dollars, and when you finally did, often, it was too late.

With that stated, stablecoins have had several challenges. And that includes scandals that have made traders cautious and doubtful. In particular, as to whether every stablecoin is indeed backed by a dollar or some other real-world asset.

For example, auditors of Tether have, in the past, raised concerns about the company’s ability and commitment to making their stablecoin fully backed by the dollar.

Another major challenge that stablecoins have had to deal with is keeping the exchange rate strictly one coin to one dollar (1:1).

If you visit CoinMarketCap, a site that tracks the market performance of crypto assets, including stablecoins, you will notice that almost all the stablecoins struggle to maintain the exchange rate.

Each of them often is either trading a few cents above or below the dollar. While most of the time, the difference can be described as very minute, it can make a huge difference, especially when you have to trade huge volumes.

So, stablecoins have solved a few problems, but they have not turned out to be perfect. In particular, it is not advisable to hold significant amounts of your investment in them. 

And also, just like how you need a Bitcoin calculator when trading bitcoins, you need a calculator when converting between the dollar and stablecoins. That is because the exchange rate of 1:1 is not always maintained. 

Blockchain/Crypto Guest Post