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Rising from the Ashes: Lessons learned from a major loss in crypto investing

Updated: Jan 29, 2023

As part of my ongoing journey to try, learn, and pass along the lessons about personal finances from a novice in finance but with the avidity of building and growing my wealth, I thought of sharing my learning lessons about stablecoins.

It is not long ago since I was populating my Linkedin portal as well as other social media with personal comments on how awesome stake stablecoin was for my investment diversification. Suffice it to say at some point, I put the majority of my eggs in that one basket. So here go my bumpy experience and discoveries.

In 2021 I was working for a startup as their Marketing lead. My mission was to promote their product, which consisted of stake USDT for a higher APY. For my job to be successful, I had to learn and experience the product. It was a blast!

Stablecoins are a type of cryptocurrency that is pegged to the value of a fiat currency, commodity, or another cryptocurrency. This means that the value of a stablecoin is directly tied to the value of the underlying asset. This helps to reduce the volatility that is often associated with other cryptocurrencies. Hence positive concept I built around investing on stablecoins. Unlike Bitcoin or any other crypto, volatility most digital currencies experience is stressful to manage. But let's start with types stablecoins, their uses, security measures, regulations, and my opinion of the future with stablecoin.

In history, the first stablecoin was BitUSD, which was launched in 2014. It was created by Charles Hoskinson and Dan Larimer. Since then a lot has happened. Now there are several types of stablecoin, each with unique characteristics. The most common type of stablecoin is the fiat-collateralized stablecoin, which is backed by a reserve of fiat currency. This means that for every stablecoin in circulation, there is an equivalent amount of fiat currency held in reserve. Other types of stablecoins include commodity-collateralized stablecoins, which are backed by a reserve of a physical commodity such as gold, and crypto-collateralized stablecoins, which are secured by a reserve of another cryptocurrency.

Stablecoins have a variety of uses, including being used as a store of value, a medium of exchange, and a means of speculation. They are often used as a means of hedging against the volatility of other cryptocurrencies. They are also used as a way to move money across borders with lower fees and faster transaction times than traditional methods.

While at work, I grew curious to learn more about the technology behind stablecoins to understand its potential.

For starters, security is an obvious consideration when it comes to stablecoins. Most stablecoin projects are transparent and open-source, which allows for independent auditing of their reserves. Additionally, many stablecoin projects have implemented advanced security measures such as multi-sig wallets, which require multiple signatures to access funds.

My then preferred stablecoin was USDT. However all the excitement and high expectations I had about staking USDT for a high APY being my main passive income source was about to go south. The speculations about its security and regulations of Tether made everything seem so murky. A raising scandal involved allegations of Bitfinex using Tether to manipulate the cryptocurrency market, artificially inflating the price of Bitcoin and other cryptocurrencies. In 2021, an investigation led to a legal battle, with Bitfinex and Tether settling with the New York AG's office, paying a $18.5 million fine and agreeing to regular reporting on their reserves.

The Tether case highlighted the lack of transparency and regulatory oversight in the cryptocurrency industry and raised questions about the stability of stablecoin projects.

Therefore an additional critical element to consider is regulation of stablecoins. Even though stablecoins are often considered to be a form of cryptocurrency, each country's regulatory environment may differ. Several countries have placed strict regulations on stablecoin projects, while others have taken a more hands-off approach. Keep in mind that regulations can change quickly, and you should stay up-to-date on your country's latest regulations.

I mentioned USDT as the first stablecoin I worked with to stake for a high APY. It worked for quite a while. My greedy investment style had me hoarding it for as long as possible, anticipating a high return over time. But not for long. In addition to the Tether issue, you may remember the recent bear market and the decay of various earning platforms. Little did I know that the fall of the crypto was the bear in disguise, ready to take away my hard-earned APY!

As expected my then-employer was forced to jump on the same bandwagon and all earning programs disappeared. Eventually, the company closed.

All together my trust and reliability got dented. So the logical thought for me was to seek for a reliable stable coin. So I was introduced to USDC.

USDC and USDT are both stablecoins, which are a type of cryptocurrency that is pegged to the value of the US dollar. The main difference between the two is the way in which they are backed and issued.

USDC is issued by Circle, a fintech company that is backed by Goldman Sachs, and it is fully collateralized by US dollars held in reserve. This means that for every USDC in circulation, there is an equivalent amount of US dollars held in reserve.

USDC is built on the Ethereum blockchain and is an ERC-20 token, which means that it can be used on the Ethereum network for various decentralized finance (DeFi) applications. USDC is also an open-source project, which allows for independent auditing of the reserves.

On the other hand, USDT is issued by Tether, a company that claims to hold an equivalent amount of US dollars in reserve for every USDT in circulation. However, USDT is built on the Bitcoin blockchain, and it is issued as an Omni layer token. USDT is also not an open-source project, which means that the reserves are not independently auditable. This has led to some controversy and questions about the true level of reserves held by Tether.

Currently, I am comparing a few alternative earning platforms. Upon becoming more confident, I will share further updates. In regards to my new preferred stablecoin, based on the various readings and personal interactions with Circle professionals, I have developed a sense of confidence in USDC. I could even be wearing a USDC jersey and cheering for them at the next crypto game.

In terms of my opinion as to where the stablecoin market is heading this year, I see growth. The increasing interest in decentralized finance (DeFi) and the growing need for borderless, fast, and low-cost transactions are driving the adoption of stablecoins. Additionally, with more institutional investors entering the market, the demand for stablecoins is expected to increase. As more and more companies are looking for stablecoins as a means of payment, we can expect a big shift from traditional methods to stablecoins. It is also possible that more countries may issue their own stablecoins in the future, which could further increase the adoption of stablecoins.

In conclusion, stablecoins are a type of cryptocurrency that is pegged to the value of a fiat currency, commodity, or another cryptocurrency. They offer a way to store value, exchange, and speculate in a less volatile environment. Security and regulations are critical considerations for stablecoins, and the forecast for 2023 is positive with the growing adoption of decentralized finance and increasing demand for borderless, fast, and low-cost transactions. It's expected that more institutional investors will enter the market and more companies will start using stablecoins as a means of payment. It's worth keeping an eye on the stablecoin market in 2023 as it may bring some exciting developments.

Nevertheless, I can emphasize more that this is a genuine share from the perspective of a crypto user, not as a financial professional. Research, reading, a continuous exploration is crucial before any financial decision.

Finally, place your bets and comments. As a marketing and crypto enthusiast, I am always open ears and appreciative of the learnings I pick from diverse comments and experiences.