What is a Stablecoin?

Right from the early days of cryptocurrency integration, the digital asset has been perceived as a risky option for traditional and conservative investors. However, as cryptocurrency was introduced to different markets around the world, it was inevitable for people to get intrigued and interested. Bitcoin was the first digital asset that paved the way for investment opportunities in the cryptocurrency space. Over the years, other tokens were incepted and experienced a series of variations that have affected the portfolio of those who joined the crypto bandwagon. The level of risk that became associated with this cryptocurrency led to the need for a more stable alternative for those who started capitalising the concept of digital assets. Thus, stablecoins were born and gave the perception of a more risk insulated avenue for investors in the cryptocurrency ecosystem. 

Stablecoin Definition‍

The term 'stablecoin' is simply a tag used to describe a particular group of cryptocurrencies. However, the main difference of this group from the regular cryptocurrencies is the fact that a stablecoin is pegged to a tangible asset.  This then presents a level of predictability, coupled with the reduction in the volatility rate. Because of these reduced market fluctuations,  the risk that comes with hedging wealth against digital assets, such as token devaluation, is also reduced. Stablecoins have then become an asset used in various strategies of seasoned crypto players to compliment the more volatile digital holdings in their portfolio. 

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Hedging with Stablecoins

In general, hedging is a financial technique used by investors to safeguard  themselves from possible negative effects of market movements. It is considered as an advanced tactic  practised to offset the risk of price variations in the cryptocurrency market. The risks associated with trading stablecoins are not as precarious as playing with  other crypto tokens. Traders have the opportunity to sharpen their trading skills with the most risk-averse asset available in the cryptocurrency market.

Conclusion 

The cryptocurrency environment is saddled with rises and dips that allow room for both profit and loss. No trader plans to end up on the losing side of the tug, however, this is sometimes unavoidable regardless of the kind of market. Using stablecoins is by no means a guaranteed protection from any investment loss but it certainly presents a seemingly cautious approach when partaking and practising in the digital assets environment.  
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