Altcoins vs. stablecoins: Key differences explained
Altcoins and stablecoins are both types of cryptocurrencies, but they differ in several key ways. Altcoins are simply all cryptocurrencies other than Bitcoin, while stablecoins are altcoins that are designed to maintain a steady value.
Altcoins can be used to pay for goods and services or as an investment tool, while stablecoins are mainly used as payment tokens.
What is an altcoin?
Altcoins are digital coins created after Bitcoin to function as a decentralized form of payment or investment. They all have different features and uses than Bitcoin, for instance, faster transaction times, improved privacy protocols, or unique features like smart contracts and distributed applications (dApps). Most altcoins are highly volatile, meaning their prices can go up and down quickly over short periods of time.
What is a stablecoin?
Stablecoins are a type of altcoins that is designed to maintain a steady value. They are typically pegged to the US dollar or other fiat currencies. Stablecoins are beneficial for people who want to use cryptocurrency but don’t want to deal with the price volatility of typical altcoins.
Since they are tied to actual currency, stablecoins are not subject to the same wild swings in value. Stablecoins are mainly used for paying for goods and services due to their low volatility.
Altcoins vs. stablecoins: key differences
The main difference between altcoins and stablecoins is volatility. Altcoins that are not pegged to a fiat currency are highly volatile, meaning their prices can go up and down quickly over short periods of time. Stablecoins, on the other hand, maintain a steady value due to being tied to actual currency, making them much more suitable for payments.
Altcoins also have different features and uses than Bitcoin, such as faster transaction times or smart contracts, whereas stablecoins are mainly used as payment tokens. Altcoins are also used for investment purposes, which is not a typical use case for stablecoins.
The ROI is significantly lower with stablecoins. While stablecoin interest rates typically range between 5% and 20%, traders are drawn to stablecoins for a variety of reasons. Stablecoins offer a number of benefits, such as convenience (users don’t have to on-ramp fiat) and the potential to include cutting-edge design innovations into the cryptocurrency.
Ultimately, both altcoins and stablecoins offer advantages and disadvantages depending on your needs. Be sure to research each type before investing in either to make sure it is the right option for you.
When to hold altcoins vs. stablecoins
Due to their various use cases, holding both stablecoins and alternative cryptocurrencies has benefits. Altcoins can be used as an investment tool, while stablecoins are mainly used as payment tokens. Altcoins tend to offer higher returns due to their volatility, but they also come with more risk. Stablecoins offer lower returns but provide a more secure and stable form of currency.
If you are looking for short-term profits, altcoins are a better option. They are much more volatile, meaning their prices can go up and down quickly over short periods of time. Stablecoins, on the other hand, are better for long-term investments as they do not suffer from the same degree of volatility.
Why are interest rates on stablecoins so high?
Stablecoin production is continually outstripped by demand. However, because DeFi protocols reduce economic rents, stablecoin interest rates are higher than those of fiat currencies. This is due to the fact that these protocols aim to maximize returns for debtors and lenders, making them more attractive.
Additionally, because of their low volatility, stablecoins are generally safer and less risky than other cryptocurrencies, so investors can earn high returns with less risk. All of this leads to higher interest rates on stablecoins compared to traditional assets like stocks and bonds.
How stablecoins hedge against crypto market volatility
Stablecoins are a great way to hedge against crypto market volatility as they maintain a steady value. They are not subject to the same wild swings in value that altcoins experience and can provide protection against the more extreme fluctuations of traditional cryptocurrencies.
Stablecoins vs. altcoins: Important conclusions
For cryptocurrency investors, altcoins are valuable assets, but their prices are subject to sharp swings. Investing in a cryptocurrency could yield a 10x return, but it also carries the risk of a swift fall. Additionally, there are too many subpar projects competing for investors in the altcoin market.
Stablecoins are an alternative to risky cryptocurrencies. They offer investors a secure and low-volatility asset that doesn’t suffer from the same degree of price movements altcoins do. Stablecoins also have higher interest rates than traditional assets, making them attractive for investors looking for a safe haven in a volatile market.
Ultimately, the choice between altcoins and stablecoins should depend on the investor’s needs. Do your research before investing to ensure you make the right decision for yourself.
Related articles: