Key Takeaways
- Digital assets have a variety of use cases, including payments and currencies, smart contract platforms, stablecoins, non-fungible tokens, gaming, and the metaverse.
- Investors are encouraged to understand the use case and sector of a specific digital asset before investing. If it is unclear if there is a use case or network of users for a token, it may not be a good investment.
- While most digital assets experience substantial price volatility, stablecoins are designed to maintain a constant value, such as one US dollar.
Not all digital assets are created equal. Before investing in any cryptocurrency, token, or digital asset, investors are encouraged to understand the use case of the asset underlying their investment.
Use cases include payments and currencies, smart contract platforms, stablecoins, non-fungible tokens, gaming, and the metaverse.
In payments and currencies, digital assets are designed to be saved, spent, or transferred. Prominent examples are bitcoin and XRP.
Smart contract platforms are blockchains that can execute computer programs and store the resulting data or asset on the chain. These platforms can earn fees from users as compensation for executing the computer programs and storing the results. Smart contract platforms include Ethereum, Solana, Cardano, Avalanche, and Fantom.
Stablecoins are designed to be pegged to real-world assets, such as one US dollar. While many digital assets have substantial volatility, the price volatility of stablecoins is designed to be very low. Some stablecoins, such as Binance USD, Gemini Dollar, and USDC Circle, are regulated platforms that store the value of the stablecoin in lower risk, cash equivalent assets held in US banks. Algorithmic stablecoins, such as DAI or the former Terra USD, are not backed by cash equivalents and may be subject to higher levels of risk.
Non-fungible tokens (NFTs) have a wide variety of uses. In some cases, they are customized to a single person and designed to track medical records, academic records, or even the title to real-world real estate properties. Other NFTs trade as potentially valuable assets, attracting buyers due to the aesthetic value of the art or the utility of the asset within a video game. NFTs can be purchased on a trading platform, such as Open Sea, or within a video game, such as Axie Infinity.
The metaverse is a digital world that can be used as a gathering place for users and their virtual identities. In some platforms, such as the Sandbox or Decentraland, users can buy virtual land, the value of which may vary by the size of the plot and the location of the property. Some metaverse platforms are becoming a destination for corporate brands who sponsor advertising and events within the platform.
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