The Benefits and Risks of Silver-Backed Stablecoins

Silver BackedStablecoins

Stablecoins are a sought-after asset in 2020. Their underpinning by a legitimate reserve asset (fiat currency, a basket of cryptocurrencies, or commodities) makes them appealing for investors eager to hedge against inflation while still holding a liquid asset.

The vast majority of stablecoins are backed by a fiat currency. A growing number, like, are backed by silver bullion.

Some people wonder about the advantages and disadvantages of investing in stablecoins backed by gold vs. silver. Offerings like Paxos Gold dominate headlines more than silver-backed ones do.

While gold and silver are both valuable, the metals are different and are perceived in varying ways by investors. This affects the benefits and risks of silver-backed stablecoins.

Silver-Backed Stablecoins: Risky Due To Volatility

Investors have long desired both silver and gold bullion. But the different general uses for the metals affects how investors view them. The vast majority of silver makes it into the market as a byproduct of mining processes.

Silver is often seen and used for industrial purposes more than gold. This makes silver more volatile as an asset due to its smaller market size and lower liquidity than gold.

This means silver-backed stablecoins will fluctuate in value more than gold or other fiat-backed ones. While the price of a stablecoin will never dip below the spot price, falling silver prices could make coins worth less than they were just a short time earlier.

However, since silver does seem to rally “higher and faster” than gold, silver-backed stablecoin investors have a greater chance to see coins jump above the spot price of silver in a manner not often seen with other stablecoins.

Silver-Backed Stablecoins: Advantageous Due To Price And Versatility

One of the biggest advantages of silver-backed stablecoins are their cheap price. Silver’s spot price remains far below gold’s, meaning investors can buy up a large amount of stablecoins at a cost-competitive price.

Even though silver prices were flat for the first half of 2020, research showed they still outperformed the S&P 500 by 12%, as of June 1.

Some silver-backed coins are fractionalized, meaning investors can purchase any amount of silver (a fraction of a stablecoin, in this case).

Democratizing access to silver opens up investment opportunities for a wider range of people and assures any budget can reap the benefit of investing in cryptocurrencies backed by silver.

When it comes time to redeem digital coins for bullion, silver coins, rounds, and bars are more practical for most consumers. Many do not want to sell an entire ounce of gold if they are trying to save cash for a small expense.

With silver, an investor could redeem their digital coins for physical bullion and then sell smaller denominations as needed.

Other Considerations Benefiting Silver-backed Stablecoins

Future growth prospects for silver-backed stablecoins are bolstered by rising demand for the precious metal.

Many government mints were operating at peak capacity before COVID-19, which has only further increased silver demand across the world.

Large markets like China and India maintain an affinity for silver that only grows larger.

Silver’s usage as an industrial metal is also expanding. Cell phone usage continues to rise across the globe, and a cell phone contains about 1/3 of a gram of silver.

Silver is also used in photovoltaic cells and during the production of plastics and various chemicals.

As the globe continues to urbanize, the industrial uses for silver keep expanding. Increased silver demand, in turn, bolsters the prospects of silver-backed stablecoins in ways not seen by any other precious metal.

Are Silver-Backed Stablecoins A Good Investment?

There are a number of benefits and risks to silver-backed stablecoins. Chief among both are considerations in regards to value. Silver’s volatility means investors might enjoy large upticks in price or big slides with the spot price that will impact the value of a crypto backed by silver.

However, silver’s versatility and long-term viability mean the precious metal remains a strong investment. Buying silver-backed cryptocurrencies are an easy and effective way to purchase silver without the storage and security concerns with physical bullion.

Mark Funk
Mark Funk is an experienced information security specialist who works with enterprises to mature and improve their enterprise security programs. Previously, he worked as a security news reporter.