What are the Best Stablecoins to Buy in South Africa?
Ever heard of the term “stablecoins”? With the increase in popularity of cryptocurrency in ZA, stablecoin is a term that you’ve likely heard in the.
Ever heard of the term “stablecoins”? With the increase in popularity of cryptocurrency in ZA, stablecoin is a term that you’ve likely heard in the news or social media lately – and for a good reason.
Stablecoins are a type of cryptocurrency that have their value tied to another asset, which has a stable value. The idea behind stablecoins is to combine the security and privacy of cryptocurrency payments with the volatile-free nature of fiat currency. The best of both worlds if you will.
This article will touch on what stablecoins are, the different types that are commonly available in the crypto space, as well as popular stablecoins to consider buying in ZA for 2021.
Jump right in: Click here to invest in stablecoins in South Africa.
Stablecoins overview in ZA
As mediums of exchange, cryptocurrencies have certain distinct advantages such as near-instant transactions and the privacy and security of a decentralized structure. However, despite their inherent benefits, cryptocurrencies are also known for their volatility.
This volatile nature of cryptocurrencies reduces their overall practicality for daily transactions that fiat currency offers. For instance, in November 2020, the price of 1 Bitcoin was roughly about $19,000, while as of February 2021, it rose to up to $50,000 and it crossed a record high of $60,000 on March 13, 2021.
Again, this kind of volatility makes it difficult for everyday use as a medium of exchange. So, how does one get the benefits of both worlds?
This is where stablecoins come in. As we prefaced above, stablecoins are a type of cryptocurrency that have their value pegged to an external asset. This can either be other currencies such as the U.S. dollar, or even precious metals such as gold.
Because of this, stablecoins offer the best features of both digital and traditional fiat currencies.
Types of stablecoins
Stablecoins can be categorized into three different types based on the type of assets that their values are pegged to.
Fiat backed stablecoins
Fiat is the most common collateral for stablecoins. Stablecoins backed by fiat currency, such as the U.S. dollar, use it to mint a certain amount of coins. This means that if a cryptocurrency is issued, it must have a corresponding value in dollar reserves or any other sovereign currency, as collateral.
These reserves are maintained by independent custodians and are regularly audited to ensure compliance. Other forms of collateral can be precious metals, such as gold and silver. Some are even based on commodities such as oil also.
Crypto-backed stablecoins are pegged to other cryptocurrencies. Since the cryptocurrency that serves as a reserve to the stablecoins may be highly volatile, such stablecoins are usually overcollateralized. This means a much larger number of cryptocurrencies is maintained for a smaller number of stablecoins.
For instance, a $1500 worth of stablecoins may be issued for every $3000 worth of cryptocurrency in reserve.
They can also be referred to as seigniorage-style stablecoins. They are backed by a process or algorithm rather than another currency or asset. The stability of the coin is achieved by a working mechanism that determines whether it should increase or decrease the supply of tokens on a need basis.
The algorithm mirrors the monetary policy of most central banks. If the price of the token falls below the price of the fiat currency that it tracks, the algorithm system would reduce the supply. If the prices exceed that of the fiat currency, then more tokens are introduced to increase supply and lower its value.
Further reading: Read our complete guide on stablecoins and how they work.
Best stablecoins to buy in ZA
Now that we’ve gone over the different variants, what are some stablecoins you should invest in South Africa?
Below are some of the most popular stablecoins in South Africa that are worth considering if you want to enjoy the perks of digital currencies while minimizing the risks of volatility.
Tether (USDT) is perhaps the most well-known of all stablecoins. With a market cap of $38 billion, it is the largest stablecoin. It was created as a link between fiat currencies and cryptocurrencies. It is pegged against the U.S. dollar and is maintained to keep a ratio of 1:1 in terms of valuation.
Get started: Click here to purchase Tether USDT in South Africa.
USD Coin (USDC)
The USD Coin (USDC) like Tether, is pegged to the US dollar. It was co-founded by Coinbase and Circle. USD Coin is an ERC-20 token that functions on the Ethereum network, which is operable on most major crypto wallets. Investors and traders who want to diversify their crypto portfolios can invest in USDC in South Africa as an alternative to USDT.
Paxos Standard (PAX)
PAX was launched by the Paxos Trust Company and has been approved by the New York Department of Financial Services. It is an ERC-20 token that is backed by the US Dollar at a 1:1 ratio. Paxos tokens remain in circulation for as long as corresponding U.S. dollars in reserve are being held. When PAX is redeemed for US dollars, the tokens are destroyed to maintain the ratio.
The Dai (DAI) stablecoin is maintained and regulated by MakerDAO. The DAI is completely decentralized and utilizes a complex set of smart contracts to maintain its valuation stability. Dai is built on the Ethereum network, and its value is stabilized to the value of the U.S. dollar.
True USD (TUSD)
True USD (TUSD) is one of the most liquid stablecoins in the market. It offers low transaction fees compared to transfers of fiat currency. It also offers a higher interest rate for stored balances.
TrustToken, the company responsible for True USD also has other stable coins that are pegged to other currencies like the British Pounds (TrueGBP), Hong Kong Dollar (TrueHKD), and the Australian Dollar (TrueAUD).
Add it to your portfolio: Click here to buy True USD (TUSD) in South Africa.
Fate of stablecoins in ZA for 2021?
As cryptocurrencies continue to be accepted and climb in popularity, more and more institutions and entities will implement it in their platforms. The most notable one being Tesla’s massive $1.5 billion investment in Bitcoin (BTC) earlier this year. It’s even announced that it will be accepting payments for Tesla products with BTC.
While not everyone is in a position to be spending bitcoins on a Telsa product, this opens up the door to many possibilities for the usage of cryptocurrencies. This is also a positive indicator that cryptocurrencies are slowly attracting the interest of major institutions.
Some crypto industries have even predicted that the aggregate market capitalization for stablecoins may rise up to more than $100 billion. As of this article, the aggregate market capitalization was pegged at roughly $55 billion.
Stablecoins are getting more interest from the public because unlike other cryptocurrencies, they are not prone to frequent fluctuations. As a result of this low volatility, analysts have suggested that people would first largely accept stablecoins, before other cryptocurrencies.
Although there is still room for improvement, the fact that stablecoins are pegged to fiat currencies ensures that they maintain relative stability in prices and makes it easier for financial institutions that want to invest in cryptocurrency.
With that said, what are your thoughts on stablecoins? There’s no denying the fact that cryptocurrencies offer much more flexibility, security, and privacy as a means of exchange. And stablecoins are an excellent choice to balance out the volatility while still retaining the benefits of a digital currency.
Get started today: Click here to invest in stablecoins in South Africa.
Learn more about crypto by exploring the different topics on our learn site.
Also, don’t forget to subscribe to our monthly newsletter to have the latest crypto insights, news, and updates delivered to our inbox.
Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated Dec 27, 2021