At a basic level, a fixed-value crypto-asset is a cryptocurrency whose price is tied to another asset. In other words, the value of the cryptocurrency does not fluctuate as wildly as other cryptocurrencies. It is more stable. And if you want to do stable cryptocurrency trading, then use bitcoin up. This can be great for investors who want more certainty in their investments and don’t want to deal with the high volatility of many cryptocurrencies.
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What are Fixed Value Crypto Assets?
Fixed-value crypto assets are cryptocurrencies that have a fixed price. This means they are not as volatile as other cryptocurrencies, making them an attractive option for businesses looking to make transactions more stable. Additionally, they may be pegged to the value of other currencies such as the US dollar or gold.
Some examples of fixed value crypto assets include:
Basecoin – a cryptocurrency that is linked to US dollars.
USD Coin – A cryptocurrency that is linked to the US dollar.
How do fixed-value crypto assets work?
These crypto assets are created as a token on the blockchain but are not mined like other cryptocurrencies. Instead of mining new tokens, the supply of value-linked cryptoassets is controlled by the issuer or foundation that created them.
An issuer typically uses collateral to back up its tokens; this collateral is held in an escrow account. At the same time, the linked currency of the central bank is held in another account with the same institution. It can peg the value of each token against either fiat currencies (like USD/EUR) or other cryptocurrencies (like BTC/ETH).
To keep the peg in place, issuers of pegged cryptoassets will need to take out loans from banks, which will use their crypto reserves as collateral for that loan. So when someone wants to buy a token from an issuer using Bitcoin for example, they need to have enough Bitcoin available to buy it. After paying off their loan, there must be enough reserves left in the open currency.
Different types of fixed value cryptoassets
The most common type of fixed-value crypto-asset is stablecoins. These are cryptocurrencies whose values are stabilized by a major party and backed by a real-world fiat currency such as the US dollar or the euro. Some examples include Tether (USDT), TrueUSD (TUSD), and Gemini Dollar (GUSD).
Another popular form of value-linked crypto-assets are fiat-backed tokens. Similar to stablecoins, except that they are not tied to any specific government currency, but instead represent their own blockchain-based “virtual” money. An example would be MakerDAO’s Dai and it supports Ether rather than USDT.
What Fixed Value Crypto Assets Mean for Investors
For investors, fixed-value cryptoassets are a way to invest in cryptocurrency without worrying about the risks associated with volatility. The relative stability of these assets means they can act as a hedge against the risk of investing in cryptocurrencies. Additionally, fixed-value cryptocurrencies offer an easy route into this market for those interested in exposure to crypto assets but don’t want to deal with all of their complexities or risks.
Fixed value crypto assets are not like average cryptocurrencies. They have a fixed exchange rate for fiat currency, which means they don’t experience the same volatility as other cryptocurrencies. And while you can use them in the same way as regular cryptocurrency, fixed-value crypto assets are backed by real-world assets.
As a result, they are often used instead of fiat currencies in certain situations. For example, one country recently announced plans to introduce a government-backed digital currency that is pegged 1:1 to its national currency. This makes it easier for citizens to transact online without having their wealth tied up in volatile cryptocurrency markets.
