What Are Fixed-Price Cryptocurrencies?


Considering that many cryptocurrencies and blockchain enthusiasts tout the industry’s decentralized status, it may come as a surprise that there are digital currencies out there that are designed to closely reflect the value and market behavior of certain “real-world” assets.

These so-called “fixed-price” cryptocurrencies offer a unique set of draws for the potential investor. However, they also come with risks that may not be inherent in other cryptocurrencies. In reality, the idea of a fixed-price cryptocurrency is not a new one for the relatively new industry, as developers have toyed with the concept for years. Nonetheless, the investing world is somewhat unsure of how to treat this take on the digital currency philosophy.

Advantages and Disadvantages

Fixed-price tokens or coins provide both advantages and disadvantages for the potential investor. On one hand, while most cryptocurrencies have been notably volatile throughout their histories, a token with value fixed to, say, the U.S. dollar or gold would not suffer from similar fluctuations. This makes these tokens a potential store of value, and it also may lend confidence to investors to buy and spend them without feeling the need to hold onto tokens in a speculative manner.

On the other hand, though, fixed-price tokens are largely untested. As a report by Cryptovest suggests, the mechanisms that are used to control the price of the token in question could backfire, which ultimately might lead to additional losses for the investor. At the same time, it can be difficult to move out of the token, as it doesn’t fluctuate and it can’t be changed back to other assets with ease. Finally, over the past few years, fixed-price tokens have suffered from investor disinterest compared to cryptocurrency leaders like bitcoin and ether.

Fixed-Price Token Examples

Of the existing fixed-price tokens and coins, many are linked to the U.S. dollar or to gold. BitUSD has been pegged to the U.S. dollar for years. On the gold side, bitGold has seen remarkable stability over the long term, while GoldMint is a newer entry into the space. Royal Mint Gold (RMG) is just emerging but has already drawn interest because of its backing by the Bank of England.

Read more at:

What Are Fixed-Price Cryptocurrencies? | Investopedia https://www.investopedia.com/news/what-are-fixedprice-cryptocurrencies/#ixzz5AbrS8CGF


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