What are Stablecoins in Crypto?
Stablecoins are a type of cryptocurrency designed to maintain a stable or steeady value, unlike Bitcoin or Ethereum, which can rise and fall sharply. Practically, a stablecoin is digital money that is designed to stay close to a specific price, most commonly 1 US dollar.
Stablecoins are built around a “peg” system (meaning that the value of the coin is tied to something else). In most cases, that “something” is the US dollar. So:
- 1 USDT ≈ $1
- 1 USDC ≈ $1
This peg is maintained using reserves, collateral, or automated systems, depending on the type of stablecoin.
For example, with major stablecoins like USDT (Tether), the issuing company claims to hold real-world assets such as cash or treasury bills that match the number of coins in circulation. This is why millions of people trust it for everyday use, even though it is still important to understand the risks.
From a practical standpoint, stablecoins are used because they solve a very specific problem in crypto. The problem of volatility (most cryptocurrencies are too volatile to function as money).
Imagine receiving your salary in Bitcoin. Today it might be worth ₦500,000, and next week it could drop to ₦350,000. These unpredictable fluctuations make it hard to:
- Save money
- Pay for goods
- Run a business
Stablecoins fix this by acting as a digital version of the dollar, without requiring a traditional bank.
Another thing to understand about stablecoins is that they are fully digital and blockchain-based. This means:
- You can send them instantly across countries
- Transactions are recorded publicly on a blockchain
- You don’t need a bank to hold or transfer them
For example, sending $500 worth of stablecoins from Nigeria to Ghana or the UK can take a few minutes, compared to days with traditional banks. Fees are also often lower, depending on the network used.
How Do Stablecoins Work?
Stablecoins work by using different systems to keep their price stable. The key idea behind all stablecoins is that there must be something supporting (or controlling) their value so it does not fluctuate like regular cryptocurrencies.
However, not all stablecoins achieve this in the same way. The method used is what determines how safe, transparent, and reliable a stablecoin is in real-world use.
Below are the four main types of stablecoins and exactly how each one works.
1. Fiat-Backed Stablecoins (Most Common and Practical):
Fiat-backed stablecoins are supported by real-world money, usually held in bank accounts or financial institutions.
How it works:
- A company issues the stablecoin (for example, USDT or USDC)
- For every 1 coin created, the company holds $1 (or equivalent assets) in reserve
- When users buy the stablecoin, new coins are minted
- When users redeem (sell back), coins are destroyed (burned)
👉 This system keeps the supply balanced and helps maintain the $1 value.
What backs them:
- Cash (USD)
- Bank deposits
- Short-term government securities (like U.S. Treasury bills)
Why people use them:
- Easy to understand
- Stable and widely accepted
- Best for trading, saving, and sending money
2. Crypto-Backed Stablecoins (Decentralised but More Complex):
Crypto-backed stablecoins are backed by other cryptocurrencies instead of fiat money.
How it works:
- You deposit cryptocurrency (like ETH) into a smart contract
- The system locks your crypto as collateral
- You receive stablecoins in return (e.g., DAI)
- To get your crypto back, you must return the stablecoins
The key mechanism used for this type of stablecoin is Overcollateralisation.
Because crypto prices are volatile, the system requires you to deposit more value than you receive.
Example:
- You deposit $150 worth of ETH
- You receive $100 worth of stablecoins
This extra buffer protects the system if the price of ETH drops.
Automatic liquidation:
If your collateral value falls too much:
- The system automatically sells your crypto
- This prevents the stablecoin from losing its peg
Why people use them:
- No central authority (fully decentralised)
- Transparent (runs on smart contracts)
- Popular in DeFi (Decentralised Finance)
Practical downside:
- More complicated for beginners
- Requires active monitoring
- Risk of liquidation if the market drops suddenly
3. Algorithmic Stablecoins (High Risk, System-Controlled):
Algorithmic stablecoins do not rely on real assets. Instead, they use code and supply control to maintain price stability.
How it works:
- The system monitors the price of the stablecoin
- If the price goes above $1, more coins are created (increase supply)
- If the price drops below $1, coins are removed from circulation (reduce supply)
👉 This is similar to how central banks control money supply, but done automatically with code.
Some systems also use a secondary token to absorb volatility.
Example mechanism:
- If demand drops, users are incentivised to burn stablecoins
- In return, they receive another token with potential future value
Why this is risky:
Algorithmic stablecoins depend heavily on market confidence. If users lose trust:
- Everyone tries to sell at once
- The system cannot maintain the peg
- The price collapses
This has happened before in major crypto failures, leading to billions in losses.
Practical takeaway:
- Not suitable for beginners
- Not reliable for storing value
- Mostly used for experimentation or advanced trading
4. Commodity-Backed Stablecoins (Asset-Based Stability):
Commodity-backed stablecoins are backed by physical assets like gold, oil, real estate, or other commodities.
How it works:
- Each stablecoin represents ownership of a real-world asset
- The asset is stored by a custodian (e.g., gold in a vault)
- The value of the stablecoin follows the price of that commodity
Example:
- 1 token = 1 gram of gold
If gold price increases, the value of the stablecoin also increases.
Why people use them:
- Hedge against inflation
- Exposure to commodities without physically owning them
- More stable than crypto, but not fixed like USD-backed coins
Practical limitations:
- Not as widely used as fiat-backed stablecoins
- Less liquid (harder to trade quickly)
- Requires trust in the storage and auditing of the physical asset
Why Stablecoins Matter to Crypto Traders (Especially in Nigeria)
1. Safe Parking Spot During Market Volatility:
Crypto prices can change very quickly. For example:
- You buy Bitcoin at $60,000
- The market starts dropping
- You don’t want to lose value
Instead of converting back to naira (which can be slow or costly), you simply convert your Bitcoin to USDT.
Now:
- Your funds are stable (still around $1 per USDT)
- You are protected from further price drops
- You are ready to re-enter the market at a better price
👉 This is called “moving to stablecoins,” and it is one of the most common strategies used by traders.
2. Direct Access to Dollar Value Without a Bank:
In Nigeria, accessing USD through traditional banks can be difficult due to:
- Foreign exchange restrictions
- Limited availability of dollars
- High conversion costs
Stablecoins solve this instantly.
Instead of trying to open a domiciliary account or buy dollars physically, traders simply:
- Convert naira to USDT
- Hold and trade in USD value
👉 This makes stablecoins a practical alternative to holding actual dollars.
3. Main Trading Pair in Crypto Markets:
Most crypto exchanges do not use naira directly. Instead, they use stablecoins like USDT as the base currency.
This means:
- You don’t trade BTC/NGN
- You trade BTC/USDT
So, if you want to:
- Buy Bitcoin
- Sell Ethereum
- Swap any crypto
You will most likely need stablecoins.
👉 Without stablecoins, trading access becomes limited and inefficient.
4. Fast Entry and Exit:
Timing is very important in trading. Opportunities can appear and disappear within minutes.
With stablecoins:
- You can enter trades instantly
- You can exit without waiting for bank processing
- You avoid delays linked to fiat withdrawals
For Nigerian traders, this is critical because:
- Bank transfers can fail or delay
- Payment systems may be restricted
- Market opportunities do not wait
Stablecoins remove these limitations.
5. Reduced Transaction Friction and Cost:
Moving money through traditional systems often involves:
- Transfer fees
- Exchange rate losses
- Delays
With stablecoins:
- Transfers are faster
- Fees are often lower (depending on network)
- You maintain dollar value throughout
For active traders, these small savings add up significantly over time.
6. Better Risk Management:
In trading, risk management is everything. Stablecoins allow traders to:
- Lock in profits after a successful trade
- Avoid emotional decisions during market swings
- Maintain liquidity for future opportunities
Example:
- You make $500 profit on a trade
- You convert to USDT immediately
Now:
- Your profit is secured
- You are not exposed to sudden market drops
👉 This discipline is what separates consistent traders from losing traders.
7. Cross-Border Trading and Arbitrage Opportunities:
Some traders take advantage of price differences across platforms or countries.
With stablecoins, you can:
- Move funds between exchanges globally
- Buy low in one market and sell high in another
- Take advantage of pricing inefficiencies
This is especially useful in Nigeria, where local prices can differ from global markets.
8. Reliable Hedge Against Naira Depreciation:
Even outside trading, many Nigerian traders hold stablecoins simply to protect their capital.
For example:
- You keep trading capital in naira
- The naira weakens
- Your buying power reduces
But if your funds are in USDT:
- Your capital remains tied to USD
- You maintain consistent trading power
👉 This stability is critical for long-term trading success.
How to Use Stablecoins on Obiex
1. Create and Verify Your Obiex Account:
Before you can use stablecoins, you need a verified account.
What to do:
- Sign up on Obiex using your email or phone number
- Complete KYC (Know Your Customer) verification
- Enable security features like 2FA
Why this matters:
- Verification allows you to deposit, trade, and withdraw
- It also protects your account from fraud
👉 Without completing this step, you won’t be able to fully use stablecoins on the platform.
2. Deposit Naira (NGN) into Your Wallet:
Stablecoins are usually bought using your local currency first.
How it works on Obiex:
- Go to the “Wallet” section
- Select "Deposit" → "Buy Crypto with Fiat", select "NGNX" (or other available fiat currencies)
- Transfer money from your bank to the provided account
Practical tip:
- Always confirm the account details inside Obiex before sending money
- Use your registered name to avoid delays
👉 Once the deposit reflects, your NGN balance is ready to convert.
3. Convert NGN to Stablecoins (USDT or USDC):
This is the most important step.
What to do:
- Go to the “Swap” section
- Select NGN → USDT (or USDC)
- Enter the amount
- Confirm the transaction
- Your wallet is credited instantly or within minutes
4. Use Stablecoins for Trading:
Stablecoins are the main currency used for trading crypto on Obiex.
What you can do:
- Buy Bitcoin (BTC) using USDT
- Sell Ethereum (ETH) back to USDT
- Swap between different cryptocurrencies
Why this is important:
- Most crypto pairs are based on USDT, not NGN (unless it is USDT/NGNX)
- It allows faster and smoother trading
👉 Therefore, USDT becomes your “trading wallet.”
5. Use Stablecoins to Store Value (Dollar Savings):
Many users on Obiex also store value using stablecoins.
How it works:
- Convert your NGN to USDT
- Leave it in your wallet
Why people do this:
- Protect against naira depreciation
- Maintain stable purchasing power
👉 This is one of the most common uses of stablecoins in Nigeria.
6. Send Stablecoins to Anyone (Local or International):
Stablecoins can be transferred easily.
What to do:
- Go to “Wallet” and “Withdraw”
- Enter the recipient’s wallet address or Obiex username (if the recipient is an Obiexer)
- Select the network
- Confirm the transaction
Key things to check:
- Wallet address (must be correct)
- Network type (e.g., TRC20, ERC20)
👉 Transactions are usually completed within minutes.
Use cases:
- Paying freelancers abroad
- Sending money to family
- Moving funds between exchanges
7. Convert Stablecoins Back to Naira:
Whenever you need cash:
Steps:
- Go to “Swap”
- Select USDT → NGN
- Enter amount
- Confirm
Your stablecoins are converted back to naira, and you can withdraw to your bank account.
This gives you full flexibility, so you can move in and out anytime.
Are you ready to start using stablecoins?
👉 Sign up on Obiex today to get the best out of stablecoins, with competitive rates, and zero transaction fees.
FAQs
1. What are stablecoins in crypto?
Stablecoins are cryptocurrencies designed to maintain a stable value, usually equal to $1.
2. Are stablecoins safe?
They are generally safer than volatile crypto, but still carry risks like issuer failure or regulation.
3. Can I use stablecoins in Nigeria?
Yes. Many Nigerians use stablecoins to store value and send money.
4. What is the best stablecoin to use?
USDT and USDC are the most widely used and trusted.
5. How do I buy stablecoins?
You can buy them on platforms like Obiex using your local currency.
6. Can stablecoins lose value?
Yes, but rarely. This is called “depegging.”
7. Do I need a bank account to use stablecoins?
Not necessarily. You can operate fully within crypto platforms.
8. Are stablecoins legal in Nigeria?
They are widely used, but regulations can change. Always stay updated.
9. Can I send stablecoins internationally?
Yes. One of their biggest advantages is fast global transfers.
10. Why do people prefer stablecoins over Bitcoin?
Because stablecoins do not fluctuate wildly in price, making them better for saving and transactions.
Disclaimer: This article was written to provide guidance and understanding. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.
