Stablecoins have rapidly become one of the most intriguing and impactful innovations in cryptocurrency in recent years, but are stablecoins really stable? What value do they provide? Which stablecoin could you potentially invest in?

Join us in this blog as we try to answer all your questions related to stablecoins. We will explore what stablecoins are, whether they lose value, their main purpose, their future, and more. Let’s dive in!

When most people first hear the term “stablecoin,” they understandably wonder: How stable can a digital currency really be? After all, cryptocurrencies are notorious for their wild price fluctuations.

Stablecoins maintain stability by pegging themselves to real-world assets like fiat currencies. EURK, for example, is a euro stablecoin that is 1:1 backed by real cash in trusted bank reserves.

Regular independent audits confirm that cash held in Swiss and Dominican banks fully backs the EURK token. This backing is what allows EURK to maintain its €1 peg and remain largely unaffected by crypto market volatility.

Of course, no stablecoin is entirely risk-free; events like the recent collapse of TerraUSD show why oversight and transparency are so important. However, when done correctly, stablecoins can provide the stability that their name implies, as with EURK.

What are stablecoins?

Stablecoins are a type of cryptocurrency that aim to keep exchange rate fluctuations to a minimum relative to designated stable assets or currency baskets. They function similarly to cryptocurrencies, but they seek to minimize price volatility in order to maintain their pegged value.

Most stablecoins are centralized, meaning a company maintains control over the crypto token supply and reserves backing each coin. There are several types of stablecoins.

Fiat-collateralized stablecoins, such as EURK, have a 1:1 value to fiat currencies, such as euros, held in reserves. Commodities, baskets of assets, or algorithmic management can back non-fiat stablecoins.

Generally, the goal is to facilitate crypto payments, crypto trading, and lending by smoothing out price instability. Stablecoins have rapidly grown to become the second largest cryptocurrency asset class after Bitcoin, representing over $150 billion in capitalization.

Do stablecoins lose value?

While no crypto coin is 100% protected, stablecoins aim to minimize losses from volatility. Well-designed stablecoins like EURK euro stablecoin track their target currency very closely, usually fluctuating by mere fractions of a cent.

However, there are risks. Stablecoin holders should be aware of the risks that could potentially cause depreciation from their target price:

• If reserves don't actually back each coin 1:1 as claimed, or if reserves lose value, the peg could weaken.
• A software bug or hack could disrupt the supply-and-demand mechanisms stabilizing certain algorithmic stablecoins.
• New rules regarding stablecoins or their partners could have an impact on stability and investor confidence.

Provided responsible issuers like Cryptobunq adequately manage reserves, mitigate risks, and ensure transparency, stablecoins can offer valuable price coherence while transacting in cryptocurrency.

Overall losses tend to be small for well-designed, trustworthy stablecoin projects. If you have further questions, make sure to check out “Can stablecoins lose their value?” and “Are stablecoins a good investment?”.

What is the purpose of a stablecoin?

Stablecoins aim to bridge the traditional and cryptocurrency worlds by providing cryptocurrency users with a place to park funds without fear of wild swings in price. By removing volatility from the equation, they also facilitate cryptocurrency trading, spending, lending, and more.

Some key uses of stablecoins include:

Trading pairs

Stablecoins allow traders to quickly exit positions without cashing out in fiat currency first. This expands crypto trading opportunities.

Remittances

Stablecoins can facilitate faster, cheaper international money transfers, such as cross-border payments and global payments, compared to traditional banking systems.

Payments

Merchants may accept stablecoin payments to avoid volatility risk, and users can easily pay in stores with stablecoin wallets.

DeFi lending

Stablecoins play a huge role in decentralized finance and decentralized applications by providing a reliable asset to borrow, lend, and earn interest on.

Corporate treasuries

Some companies now hold stablecoin reserves for crypto payments or to gain exposure to cryptocurrency without volatility.

Stablecoins, when properly implemented by responsible issuers, provide foundational financial infrastructure, advancing cryptocurrency accessibility and adoption worldwide. The EURK is at the forefront of powering these revolutionary new use cases as the best stablecoin for the euro.

Why are stablecoins so important?

Stablecoins, beyond the uses outlined above, have rapidly become integral to the cryptocurrency ecosystem and financial innovation for a few key reasons:

First, by acting as a bridge currency between fiat and other cryptos, stablecoins vastly expand trading opportunities and allow more seamless participation across crypto exchanges, lending platforms, and decentralized applications worldwide.

Second, stablecoins reduce barriers for individuals and businesses worldwide to engage with cryptocurrency by removing extreme volatility from investing and spending decisions. Particularly for emerging markets lacking access to banks, stablecoins enhance financial inclusion.

Third, stablecoins provide the building blocks necessary for adoption by facilitating payments, transfers, lending and borrowing, and various financial services that would be far riskier or more complex without a steady means of account. Well-designed protocols like EURK are unlocking new opportunities.

While risks remain, responsible stablecoin issuers have demonstrated the capacity of stablecoins to deliver value by introducing fiat monetary characteristics to cryptocurrency and furthering mainstream accessibility and adoption globally through trusted, compliant services.

Will stablecoins survive?

Some questions remain around stablecoins' long-term viability given inherent risks and evolving regulation. However, stablecoins have proven remarkably resilient thus far, and their trajectory suggests they are here to stay, playing a central role in cryptocurrency and beyond.

• Adoption continues to rise exponentially each year across exchanges, crypto wallets, and decentralized finance, despite macroeconomic uncertainty.
• Large centralized stablecoins have proven surprisingly stable even when depegged briefly, instilling investor confidence. Well-reserved projects, such as EURK, have kept their pegs.
• Mainstream institutions and regulators are increasingly embracing the concept of regulated stablecoins rather than prohibiting them outright.
• Technological progress continues toward algorithmic or crypto-collateralized stability without dependence on any single entity.
• Demand keeps growing for a steady, digital means of payment, preservation of wealth, and participation in 24/7 financial services that stablecoins uniquely power.

While new innovations may emerge, current stablecoins have demonstrated staying power by solving critical problems, adapting intelligently, and earning public trust through transparency and oversight. Therefore, stablecoins seem primed to remain integral to the long-term growth of cryptocurrency.

Should I keep my money in stablecoins?

In many cases, for individuals seeking exposure to cryptocurrency without extreme risk, storing funds in a stablecoin like EURK euro-based stablecoin makes sense as an overall strategy in many cases.

• Compared to holding volatile cryptos directly, stablecoins provide downside protection.
• Well-reserved stablecoins retain the same value as cash reserves while accruing benefits like interest in lending pools.
• Stablecoins facilitate easy cash conversion when buying or selling other cryptocurrencies without exposing capital to bumps in the crypto market.

Diversifying between several high-quality issuers is wise, and using stablecoins primarily for their transactional qualities rather than long-term wealth preservation may suit some investors' goals better depending on tolerance.

Major brands, like Cryptobunq, vouch for product quality, transparency, and regulatory compliance. Platforms like Cryptobunq, which properly manage reserves and mitigate risks, make stablecoins a sensible place to invest in stablecoins for many users.

Cryptobunq is a secure, one-stop-shop crypto service provider you can trust, from crypto exchange API to crypto checkout and invoicing. You can easily store, manage, and trade stablecoins and cryptocurrencies with the expert services of CBQ, such as custody and wallet.

If you want to integrate our crypto solutions into your business and manage your crypto assets, such as stablecoin, securely in the blockchain ecosystem, contact us today!