When most people hear about cryptocurrency, they think of an unstable market that fluctuates often. Many people have made and lost their fortunes by investing in cryptocurrency. Fortunately, crypto investments don’t have to be risky. Investing in stable coin can be an ideal alternative. The following are some types of stable coin.
Flat-Collateralized
A flat-collateralized stable coin is similar to many countries’ traditional currencies. The currency is backed by a precious metal like gold or another valuable commodity like oil. The value of the stable coin depends on the value of the backing element. These precious commodities are held in reserve and are protected just like traditional currencies.
Crypto-Collateralized
Not all stable coin options are backed by real valuables. Crypto-collateralized stable coin relies on other cryptocurrencies in reserve to determine its value. Although this option is more stable than investing directly in cryptocurrency, it tends to be more volatile. They do allow for some fluctuations in cryptocurrency value. For instance, they may only sell 50 percent of the reserve value to allow a price drop up to 50 percent before losing money.
Algorithmic
The third type of stable coin is algorithmic. This currency often doesn’t hold a reserve—the supply of algorithmic stable coin changes based on a specific algorithm. A computer program runs a program to determine how many stable coins are available for sale based on current trends. Unfortunately, this option doesn’t offer many protections, making it a less desirable choice.
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