Stable coins — your crypto lifeboat in times of volatility.
When setting sails to venture into uncharted oceans, you are sure to hit some choppy waters.
In crypto we have two potential events that shouts choppy waters and those are: price volatility and tax events.
I know I have said it before, but hear me out.
In this space, like no other industry, we have a collective genius striving to a common goal.
You are in good hands.
Any area that raises a concern or might stunt growth will invoke a brainstorm event within the community.
Naturally in true crypto form it will be decentralized and done in pseudo anonymous mode, until the great reveal.
Stable coins are the result of various such brainstorm events.
Specifically designed to provide a safe raft when the waves of market volatility hit as well as a legal alternative to creating unwanted tax event.
Take note that at time of publication, in South Africa, crypto showing profit, laying in your wallet, but not cashed out into a bank account is seen as “unrealized” profit and not required to be declared as a capital gain.
An important part of being custodian to your own financial freedom is to, at regular intervals, make sure your actions are in alignment with your country’s regulations.
The trading platforms you buy, sell and trade on will keep up with regulations on their part, but for your tax declarations — you are the sole responsible person.
This is where stable coins come in play. I find it very useful to use a platform that has a stable coin in place, where I can, with the simple push of a button exit a place of uncertainty, take a breather on the side without having to create a “tax event” and dive right back the moment I have my crypto sea legs back.
Stable coins are not for making gains. Should a stable coin provide opportunity for growth potential, it would literally be defeating the very purpose it was created for.
Stable coins are pegged 1:1 to a fiat currency (government issued currency) or a precious metal such as gold or silver. It is backed by a “stable” reserve.
I have included the quotation commas deliberately at “stable”, since in my opinion we are seeing some intense instability in some fiat currencies; Greece and Venezuela, case and point, but hey, I might just have been drinking too much of the crypto coolaid.
The equivalent fiat amount, or commodity will be securely stored in a reserve such as a bank account, representing each stable coin you own, or in circulation on a platform.
Stable coins represent a safety blanket to grab onto should the volatility become too much to handle.
There is no reason to stock up on stable coins, unless you are waiting for a market opportunity to ripen and want to ensure you have instant transaction processing opportunity.
The one exception here, should you so wish, would be if you are living in a country with volatility in the global currency.
Once you are ready to take profit on a particular coin, but find yourself unsure of which coin to invest into next ,and not wanting to cash out into your bank account; “parking” the funding in a stable coin would be the way to go.
You might simply find yourself in a position where your favorite coin is showing signals of strong retracement action on the horizon.
Selling and converting to the stable coin offered on the platform, until you feel ready to invest back into your coin, could save many a sleepless nights.
The full potential of stable coins are realized once platforms start “sharing” stable coins.
It would open up buying opportunity to a selection of coins, all the while avoiding any forex movement or bank “tax event” action.
The addition of tether (USDT) on the Altcointrader platform (altcointrader.co.za) created a wonderful trade, buy and sell option for South Africans. More information on tether at: https://tether.to/
No more having to buy crypto on your credit card and deal with ghastly credit card fees and massive delays in receiving your funding to an offshore platform. Deposit your ZAR, convert to tether, transfer the tether to any platform your heart desires such as Bitfinex, https://www.bitfinex.com/, purchase your crypto of choice and trade as you wish.
Should you decide to bring the profit or capital back, simply convert back to tether and transfer back to Altcointrader, where the opportunity to convert back to ZAR will be available.
Altcointrader also has their own xZAR South African Tether stable coin pegged 1:1 to ZAR.
Richard de Souza, founder and CEO of Altcointrader, shares three valuable real life applications for South African users, from online business payment options, to arbitraging and shifting between centralized and decentralized exchanges in his YouTube video below.
We eagerly await the balance of the South African platforms to join the stable coin movement. Imagine how many hurdles would be smoothed out if xZAR was on all the South African exchanges?
Xago (xago.io), recently created, by means of the stable coin XZR, operating on the XRP ledger, a smooth payment gateway for South Africans to be able to trade on the StratumX exchange (straumx.io) with some more exciting development to follow in the near future.
It would be wise to keep a close watch over the markets while you are invested in a stable coin.
You are parked on the side of the road with hazards on, remember?
More complex stable coins that are collateralized by crypto currencies have seen an uprise in popularity due to strong development within the DeFi space.
Dai issued by MakerDAO is a popular choice for DeFi transactions. It is a decentralized stable coin. The role of a central authority has been replaced by a smart contract and reserves are locked at Collateralized Debt Positions (CDPs).
Wrapped Bitcoin (WBTC), pegged 1:1 to Bitcoin, creates a bridge between Bitcoin and Ethereum and Wrapped Ethereum (wETH) pegged 1:1 to Ethereum, are both useful in the DeFi space, since the DeFi ERC-20 tokens are not compatible with the Ethereum Network they are built on.
More of this when we discuss:
“DeFi — The next Revolution.”
Tether (USDT), launched in 2014 and is the oldest as well as the largest stable coin by market capitalization. Creating an easy way to shift between platforms and optimize arbitraging opportunities.
Cross border payment followed shortly after its launch, creating payment solutions in cases such as China where strict border controls are in place.
Over the years tether has frequently received some bad press.
It reminds me of Dutch proverb: “Tall trees catch much wind.”
The most often expressed concern is put to rest with the below clearly stated on the Tether site:
“Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).”
The balance of the reserves are published daily.
USD coin (USDC) is managed by Coinbase and Circle and is the second largest stable coin by market capitalization.
In the following years we are sure to see more and more stable coins join the ranks as the full understanding of borderless, instant payment and moving of funds become more apparent within the crypto space.
For now, it is important to understand the use case opportunities already in place for all crypto users and appreciating this is one place where you do not want to be a HODLer.