Investments might be all about taking risks, but they need not be an extreme sport. The risks must be calculated. This is why some investors, despite the alluring craze, are wary of diving into the Bitcoin world. Bitcoin, a cryptocurrency, is highly volatile.
But there is some good news. Inventors are increasingly coming up with stable coins that do not dramatically fluctuate like Bitcoin or Ethereum. One such crypto is tether (USDT). USDT is the latest stable coin to get into the Kenyan market. The tokens will be traded on the Yellow Card exchange.
Owned by Tether Limited, USDT targets investors who prefer to trade a token one-to-one for the US dollar, without the volatility that comes with other cryptocurrencies. Tether is a cryptocurrency mainly hosted on the Ethereum blockchain and is pegged to the US dollar, which earns it the right to be called a stable coin.
Other Stable Coins
Besides Tether, other stable coins include USD Coin and Finance which derive their value from external assets. The asset can be a national currency such as the US dollar in the case of Tether or a combination of cash, treasury bonds, commercial paper, corporate bonds, and certificates of deposit with foreign banks. This is unlike other cryptocurrencies such as Bitcoin and Ethereum which are tied to being mined by computers.
Hedge Against Inflation
Stable coins such as Tether can also be used as a hedge against inflation – the general increase in prices of goods and services. This is a boon for investors in African countries such as Zambia and Nigeria, who have been discouraged from saving by the high inflation rates.
With high inflation rates, you are not sure if the Ksh500,000 that could buy a car today will be enough for the same vehicle next week. Trading with stable coins eliminates the transaction costs and delays that negatively affect your trade e*******n within the crypto market.
As of 2021, USDT remains the most widely used stable coin and is the world’s fourth-largest cryptocurrency trailing only behind Bitcoin, Ethereum and Ripple. In addition, it ranks as the coin with the highest daily trading volume, even surpassing Bitcoin.
In November, stable coins received rare plaudit from the US government, with Treasury Secretary Janet Yellen saying cryptos were well designed and had the potential to support beneficial payment options, reported Fortune Magazine.
[ Chris Maurice is the Founder of Yellow Card.]