Many people think of cryptocurrency immediately when they discuss Bitcoin. And yes, even though BTC is the first and most popular cryptocurrency, now other cryptocurrencies have appeared in the top. As the cryptocurrency market increased in size, the varieties of digital currency changed. Traditionally, four of these are existing: bitcoins, tokens, altcoins and stablecoins. In this article, we will explore the latter.

What are stablecoins?

Stablecoins are digital currencies that are tied to other assets, such as dollars, euros or gold.

Initially, only cryptocurrencies and tokens from their native projects were sold on the cryptocurrency market. The market was considered to have a low degree of capitalization and a high degree of volatility. All the trading pairs on exchanges were composed of either volatile assets or fiat currency and volatile assets. If a merchant wanted to make money, he would have to convert cryptocurrency into fiat.

These matters prompted the creation of stablecoins, which facilitated the fixation of cryptocurrency earnings without having to rely on CEXs or other institutions.

The most common stablecoin is called USDT (Tether); it is also ranked third in the top 3 cryptocurrencies by market capitalization.

How is USDT backed?

“All Tether tokens are 1:1 pegged to their respective fiat currency and are 100% backed by Tether reserves,” - the company said.

In 2024, USDT is provided by:

- 82.45% – cash and cash equivalents, short-term deposits and short-term U.S. bills;

- 9.02% – secured loans;

- 4.69% – corporate bonds, assets and precious metals;

- 3.89% – other (including other cryptocurrencies).

What does that mean? A portion of reserves are held in unreliable assets. Reliable: as long as the U.S. economy is functioning normally, these assets are short-term bills and dollars. Unreliable: precious metals, cryptocurrencies, etc.

Despite the many controversies surrounding the cryptocurrency’s support, USDT still trades confidently at $1 and has remained at its highest levels for years.

It must be mentioned that USDT is a token based on the blockchain of other cryptocurrencies. This means that it does not have its own blockchain and only acts as a secondary token, making it easier to transfer funds between people compared to using fiat currencies. Transferring USDT is like sending a text message instead of making a phone call.

Advantages and disadvantages of USDT

Advantages:

+ Popular among exchanges, exchangers and cryptocurrency enthusiasts;

+ Distribution via various blockchains;

+ Low volatility;

+ High stability;

+ High capitalization.

Disadvantages:

- Possibility of blocking through centralized management;

- There is no 100% reliable asset support;

- Vulnerable to inflation.

Where to buy USDT?

USDT can be used to make a profit when trading cryptocurrencies or to facilitate transfers. Additionally, stablecoin holders can earn passive income by accumulating tokens in smart contracts on decentralized finance platforms.

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If you decide to buy stablecoins after weighing all the pros and cons, we’ll tell you your best options.

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You need a crypto platform - Kolo. This platform allows you to buy USDT and easily exchange it for BTC, ETH, LTC, TRX or fiat when needed.