Stablecoins are increasingly becoming popular in the crypto space. Occasionally, their trading volumes surpass even the most established cryptocurrencies like Bitcoin and Ethereum. The allure of stablecoins lies in their ability to offer stability and liquidity within the volatile cryptocurrency market.
However, beyond serving as a hedge against market fluctuations, stablecoins also present a practical solution to a persistent challenge that crypto traders and investors face: high transaction fees.
In this article, we delve into the world of stablecoins and explore how savvy traders can leverage these digital assets to minimize their exposure to hefty crypto fees while navigating the complexities of the digital economy.
Stablecoins: A Primer
Before we discuss how to use stablecoins to save on crypto fees, let’s first better understand stablecoins and how they function within the cryptocurrency ecosystem.
As mentioned, stablecoins are a cryptocurrency designed to minimize price volatility. Stablecoin creators achieve this level of stability by pegging the stablecoin’s value to a stable fiat currency such as the US dollar.
However, a stablecoin can be pegged to anything with a stable value, such as gold bullion, other fiat currencies, or even a basket of stable assets similar to what you would find in an index fund.
The stablecoin creator must create a vault holding the stable asset and back each newly minted stablecoin to the stable assets based on a certain ratio. In most cases, stablecoins will be backed by a ratio of 1:1.
Different types of stablecoins are backed in different ways and for different kinds of stable assets.
Apart from fiat-backed stablecoins, some stablecoins are backed by other cryptocurrencies. Users lock up a certain amount of cryptocurrency as collateral, which backs the stablecoin’s value. MakerDAO’s DAI is a famous example of a crypto-backed stablecoin, where users lock up Ethereum (ETH) as collateral to generate DAI tokens.
There are also algorithmic stablecoins that rely on smart contracts and sophisticated algorithms to maintain their price and stability. Algorithmic stablecoins adjust their token supply dynamically in response to changes in demand to keep the price pegged to a specific value. Ampleforth (AMPL) and the now-defunct Terra Luna and UST, among others, are examples of algorithmic stablecoins.
How Stablecoins Help Save on Fees
Using stablecoins for your trading activities instead of trading directly with cryptocurrencies can significantly reduce your transaction fees.
Stablecoins maintain a stable value and are often hosted on scalable blockchain networks with low transaction fees.
For instance, a stablecoin on the Solana network will cost negligible fees since the Solana blockchain is capable of processing over 4,000 transactions per second while keeping costs extremely low.
You can also use a stablecoin such as USDT, which is hosted on the TRON network. TRON’s blockchain network is pretty much the same as Ethereum, and thanks to its implementation of a Delegated Proof-of-Stake consensus mechanism, the network can process thousands of transactions at very low fees. This makes USDT (on TRON) a reliable stablecoin for avoiding high fees. Notably, the TRON network has seen over 40% of its active addresses sending stablecoins back and forth thanks to the network’s low fees. According to reports, 2022 saw the total value of stablecoin transactions on TRON exceed $11 trillion, which is almost as much as Visa’s transaction volume.
Strategies for Using Stablecoins to Save on Fees
Saving on crypto-related fees through stablecoins comes down to your chosen network. As mentioned, networks such as TRON and Solana are known to offer some of the lowest fees when making stablecoin transactions.
Several stablecoins are available on multiple networks. For instance, you might find that the USDT stablecoin is available on the Ethereum network, as well as TRON and even Algorand.
Other stablecoins such as BUSD, USDC, USD Coin, USDD, Pax Dollar, Paxos, and DAI also run on more than one blockchain. Even so, a stablecoin is only as reliable as the network it runs on and the stable assets that back each coin.
Here is a detailed look at some popular stablecoins and the networks they run on.
USD Coin
This stablecoin is built by Circle Internet Financial in collaboration with Coinbase. The stablecoin was initially launched on the Ethereum network and is pegged to the US dollar at a ratio of 1:1. However, USD Coin has seen growth and also runs on 15 blockchain networks, including Solana, TRON, Stellar, Polygon, Avalanche, and Algorand to mention a few. The average amount of fees you can expect to pay to send USD Coins from one wallet to the other is between 0.1% and 0.15% of the amount being transacted.
Tether USDT
Tether USDT is one of the oldest stablecoins and perhaps the most popular. It was first launched in 2014. Similar to the USD Coin, each USDT is backed by one US dollar worth of assets. In the early days, USDTs were only issued on the Bitcoin blockchain through the Omni Layer protocol. However, recent developments have made USDT accessible across multiple blockchains, including TRON, Algorand, Ethereum, and the Bitcoin network.
BUSD
BUSD is a product of Binance (the world’s leading crypto exchange) and boasts several advantages when compared to other alternatives, such as full regulation. Since its launch, BUSD has been well-received thanks to the support of the Binance ecosystem. This stablecoin mostly runs on the Binance Smart Chain network, and you can expect to pay transaction fees as low as 0.1% to 0.2%.
Conclusion: Choosing a Reliable Stablecoin
When it’s all said and done, choosing a reliable stablecoin will not only allow you to save on fees but also gives you peace of mind. Stablecoins have been known to collapse in an instant, as seen in the case of certain centralized stablecoins that failed to maintain proper reserves or uphold transparency standards. Therefore, it is essential to conduct thorough research and due diligence before entrusting your funds to any stablecoin issuer or platform.
Opting for stablecoins issued by reputable and regulated entities can help mitigate the risk of sudden collapses and ensure the safety of your assets. Apart from picking stablecoins with low fees, be sure to go for stablecoins that adhere to strict regulatory standards and undergo regular audits to verify reserve holdings and maintain transparency.
Furthermore, diversifying your stablecoin holdings across multiple issuers and platforms for an added layer of security and resilience against potential failures or disruptions in the cryptocurrency market.
