October 2, 2022

What are collections?

Collections are a group of cryptocurrencies that have some major thing in common. This allows users to invest in the commonality of the group, or collections, rather than any individual cryptocurrency.

As an example, let's say that you believe strongly in the future of blockchain oracles. Oracles provide data to the blockchain and are an imperative piece of the cryptocurrency space. You could choose a single token launched by an oracle company such as Chainlink. This has the downsides that you likely know little about Chainlink, how it works, or why it is better than the other oracles you could invest in. Having an educated opinion on if the token will likely go up in the future is impossible without hours and hours of research. As an alternative, you could invest in a collection of oracle tokens. This would allow you to automatically diversify your holdings because you'd be splitting your money across several tokens, and at the same time this would be much simpler because you'd be investing in an idea that you believe in. You only have to understand the idea, and you do not need to worry about the details of the underlying tokens.

A great example of the benefits of investing in collections was the recent example of Terra. Terra, if you don't know, was a stablecoin that went to $0. A stablecoin is a token whose value is always pegged to $1. In this case, however, the token lost its peg and many people lost their life savings. All of this was due to the technical details of how the token worked underneath. If you spent hours researching the token then you would have understood the risks involved with investing in it, but most people who invest in crypto don't have the time to do that much research. What you could have done, however, was to invest in a collection of stablecoins like USDC, DAI, GUSD, and Tether. In this case, you would have been protected from Terra going to $0 without having spent hours becoming an expert on the token.

Investing in ideas rather than tokens introduces simplicity and security that is necessary for anyone new to the cryptocurrency space, and it is exactly why we offer them on the Coherence app.

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