With the fast-growing cryptocurrency industry still in its early stages, price volatility remains an important concern for all market participants. Another challenge is trying to liquidate your digital assets into cash for making payments. Since crypto markets are global and the traditional banking system is trying to catch up to the speed of innovation, it's a bit of a trick to cash out your crypto.

You can't always depend on a cryptocurrency holding a steady price, nor can you expect it to be easy to cash them in to make payments or send to your bank. Stablecoins represent a unique crypto asset class that helps solve the problems of volatility and lack of usability, raising the comfort level for both new crypto enthusiasts and seasoned investors. Because of their dependability and versatility, stablecoins are often viewed as the gateway to crypto markets.

What is a stablecoin?

A stablecoin is a type of cryptocurrency that is pegged to a "stable" asset on a 1:1 ratio. For instance, Tether and USDC stablecoins are pegged to the US dollar, meaning the market price of one Tether and one USDC coin will always be very close to, if not exactly, $1.00. Other types of stable assets like commodities and precious metals may be used to back a stablecoin, with Goldcoin being a prime example of a stablecoin backed by physical gold.

Each stablecoin holds a reserve of whatever asset is backing it. This is how its price remains generally non-volatile and more suitable for use in payments. On many exchanges, you can simply cash out your stablecoins 1:1 for dollars and have them transferred to your bank instantly for low, and in some cases, zero costs.

The benefits of using stablecoins

Because they are so easily transferred between crypto markets and fiat markets, stablecoins enjoy low volatility and a very high level of liquidity. One of crypto's first stablecoins, USDT (Tether), has been so reliable and stable, that in 2021 more than 75% of Bitcoin trading was done using USDT. This high level of liquidity and usefulness brings even more stability to crypto investors in an otherwise highly volatile market.

But that's not all that stablecoins can do. These versatile digital assets come packed with an array of additional features and benefits. Here are just a few:

• Stablecoins can be a safe-haven asset. For this, you would want to consider a stablecoin backed by something other than USD, especially if you are looking to shield your wealth during a market downturn. Commodities and precious metals like gold have historically been sought after "safe-haven" assets during times of high volatility. In the past, investors looked to physical gold as the favored safe haven. In modern times, physical gold still has its place, but a stablecoin backed by gold provides both the comfort of owning gold plus the added benefits of increased usability, liquidity, and stability.
• Borderless payments are possible with stablecoins since they connect to global, in-real-time crypto markets. Remittances, which are payments sent home by a worker living in another country, are cheaper, faster, and more convenient when using stablecoins.
• One challenge for global companies is how to pay employees from diverse regions. As remote work becomes more common, employers may access a global pool of employees, but how do they efficiently pay their staff when employees reside in a myriad of countries? Using stablecoins for paying them makes sense in our digital economy.
• Gaining access to the wide world of crypto markets is another huge plus for stablecoins. If you own stablecoins, you can easily transfer them to other digital assets should you decide to wet your feet in DeFi applications, participate in an Initial Exchange Offering (IEO), or join a meme competition on Twitter for crypto prizes.

Now that you know what stablecoins can do, let's take a look at some of today's most popular choices.

Fiat-backed stablecoins

With fiat backing a stablecoin, crypto platforms and exchanges essentially have a two-way bridge for their customers between crypto markets and the traditional money system. That is because, at this time, the US dollar is the world reserve currency, and almost every country bases its currency on it.

Most exchanges, including Coinbase (USDC), Gemini (GUSD), and Binance (BUSD), now have their own stablecoin, often in addition to listing other popular stablecoins. They generally hold a reserve of fiat cash on a 1:1 basis, allowing them to easily enable their users to switch back and forth without a problem. Cashing out from USDC or GUSD costs next to nothing, and because of their stability, bank transfers are also free or close to it.

Commodity-backed stablecoins

Stablecoins can be backed by assets other than fiat money or even a basket of assets. But commodity-backed stablecoins offer an alternative that helps investors diversify their holdings. Many different commodities may be used to back a stablecoin, but gold is the most popular, as it's been a safe-haven asset on its own for hundreds of years.

Now with digital capabilities, a precious metal-backed stablecoin using gold as its peg offers the best of both worlds. It provides a well-proven hedge from traditional fiat currencies and stock markets, as well as a high level of usability and convenience.

Commodity-backed stablecoins generally take a certain established amount of the commodity to create the base prices. With Goldcoin, for instance, 1 ounce of physical gold equals 1,000 Goldcoins.

What's even more enlightening is that gold can be fractionalized through the use of stablecoins, meaning more people can actively invest since they don't need to buy an entire gold bar. They can buy any amount of gold-backed stablecoins they want.

Algorithmic stablecoins (crypto-backed)

Instead of using commodities or fiat for backing, algorithmic stablecoins use over-collateralization of other assets, such as Ethereum. This means that the platform or exchange that issues the stablecoin offers more than a 1:1 ratio to overcompensate for the volatility the crypto asset may experience. Examples of algorithmic stablecoins include one of crypto's original stablecoins, DAI, and AMPL.

What's next for stablecoins?

With crypto markets evolving and stablecoins becoming more of a mainstay, the millions of new crypto enthusiasts, investors, and traders have a well-established virtual onramp and offramp. There's no telling what new features and forms these highly valued digital assets will take on in the future, but we do know they are here to stay.