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Stable cryptocurrency can help shore up your savings against inflation loss

ENTERPRISE
By Dominic Omondi | Jan 19th 2022 | 3 min read
By Dominic Omondi | January 19th 2022
ENTERPRISE

Chris Maurice, founder of Yellow Card.

Investments might be all about taking risks, but they need not be an extreme sport. The risks must be calculated.

This is why some investors, despite the alluring craze, are wary of diving into the Bitcoin world. Bitcoin, a cryptocurrency, is highly volatile.

But there is some good news. Inventors are increasingly coming up with stablecoins that do not dramatically fluctuate like Bitcoin or Ethereum. One such crypto is tether (USDT).

USDT is the latest stablecoin to get into the Kenyan market. The tokens will be traded on the Yellow Card exchange.

Owned by Tether Limited, USDT targets investors who prefer to trade a token one-to-one for the US dollar, without the volatility that comes with other cryptocurrencies.

Tether is a cryptocurrency mainly hosted on the Ethereum blockchain and is pegged to the US dollar, which earns it the right to be called a stablecoin.

Other stable coins

Besides Tether, other stablecoins include USD Coin and Binance which derive their value from external assets. The asset can be a national currency such as the US dollar in the case of Tether or a combination of cash, treasury bonds, commercial paper, corporate bonds, and certificates of deposit with foreign banks.

This is unlike other cryptocurrencies such as Bitcoin and Ethereum which are tied to being mined by computers.

By end of Tuesday, one tether, just like the dollar, was going for Sh113.44.

Tether was initially designed to be worth $1 (Sh113.4) always, maintaining that value in reserves for each tether issued.

Chris Maurice, the founder of Yellow Card, says that by providing stability, you can hold a digital asset similar to a conventional currency but with the ease of trading for other cryptocurrencies on the crypto markets.

“With this, you get the benefit of stability that comes with a stable government currency but with the flexibility and ease of movement of cryptocurrencies,” says Maurice.

Hedge against inflation

Stablecoins such as Tether can also be used as a hedge against inflation - the general increase in prices of goods and services. This is a boon for investors in African countries such as Zambia and Nigeria, who have been discouraged from saving by the high inflation rates.

With high inflation rates, you are not sure if the Sh500,000 that could buy a car today will be enough for the same vehicle next week.   

Trading with stable coins eliminates the transaction costs and delays that negatively affect your trade execution within the crypto market.

As of 2021, USDT remains the most widely used stablecoin and is the world’s fourth-largest cryptocurrency trailing only behind Bitcoin, Ethereum and Ripple.

In addition, it ranks as the coin with the highest daily trading volume, even surpassing Bitcoin.

In November, stablecoins received rare plaudit from the US government, with Treasury Secretary Janet Yellen saying cryptos were well designed and had the potential to support beneficial payment options, reported Fortune Magazine.

Lack of regulation

Ms Yellen was, however, quick to note that the continued absence of regulation was a problem.  

It is this lack of regulation that has seen the Central Bank of Kenya repeatedly warn the public against cryptocurrencies, with Governor Patrick Njoroge saying the digital coins are like Ponzi schemes.

Since the exchanges are unregulated, they can trap investors with the promise of unrealistic prices and heavy discounts on use.

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