Stablecoins are cryptocurrencies that are pegged to the value of other cryptocurrencies, fiat currencies, or commodities like precious metals. Stablecoins are less risky cryptocurrencies to invest in because their pegged assets fluctuate outside the cryptocurrency markets. Most stablecoins have a mechanism in place to redeem the underlying assets. This makes them unlikely to drop below the value of the underlying asset. There are three types of stablecoins: commodity-backed, fiat-backed, and cryptocurrency-backed stablecoins.
The value of commodity-backed stablecoins is pegged to one or more (redeemable) commodities. Holders of these stablecoins can redeem them at a set conversion rate for real assets.
The value of fiat-backed stablecoins is pegged to one or more currencies (like the US dollar, Euro, and the Swiss Franc). Users can trade stablecoins on cryptocurrency exchanges for fiat currencies. Financial institutions serve as depositaries of the currency used to back the stablecoin.
The value of cryptocurrency-backed stablecoins is pegged to another cryptocurrency or a cryptocurrency portfolio. These stablecoins use smart contracts to lock up the collateral. Smart contracts regulate the supply of these stablecoins on-chain.
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All trading involves risk. More than 80% of investors lose in spread bet and CFD trading. As these complex instruments allow for the use of leverage, there is a high risk of losing more money than you have deposited. Before attempting to participate in spread bets and CFDs, consider how well you understand them and if you can afford to lose your money.