What are Stablecoins?
Stablecoins provide an always stable market price linked to your standard fiat currencies such as the Dollar and Euro. This allows for some very interesting uses in Blockchain technology.
These digital tokens backed by fiat currency provide individuals and organizations with a new decentralized method of exchanging value while utilizing the same accounting methods used across the world.
There are some concerns among community leaders that these tokens have been used to inflate the market and otherwise steal value from Bitcoins growth. Others argue that Stablecoins only help to ease the transition into a revolutionary new digital economy.
How did Stablecoins Start?
Being able to digitize your paper money was introduced back in 2014 by the first digital Dollar called USD Tether. Like the name implies each Tether is worth $1 USD, backed one for one with each other.
Created to allow for better onboarding into the Bitcoin protocol, it’s since adapted to growing market conditions to allow for its usage in multiple areas, becoming a significant part of the Blockchain space.
Stablecoins vs CBDCs (Central Back Digital Currencies)
While a successful Stablecoin is likely to represent the holy grail of financial technology, none of them are robust enough to scale in a meaningful way. This is the reason why despite all the numerous Stablecoin Options available today the Central Banks are hard at work building their own Stablecoins to maintain control of the current monetary system.
These newer systems will be distinctly different from tokens such as Tether, where one entity controls a pool of US Dollar collateral, ultimately making the system centralized and thus susceptible to being shut down by the authorities. This is a valid concern for all Stablecoins currently operating.
What are the Advantages to Stablecoins?
The advantage over other currencies like Bitcoin is that there are no volatile exchange rates or challenges of encouraging new users and merchants to adopt new unknown technology.
Stablecoins also provide a unique element to the Blockchain space, allowing almost anyone in the world to exchange their local currency for a Stablecoin and send it to friends and family on the opposite side of the world. That friend or family member can then receive this money in their local currency, it doesn’t have to be the same as the senders.
This is all done on multiple Blockchains across the entire Cryptocurrency market. While some can transfer this value for less than pennies like Solana, others like Ethereum are most costly but still making cross-border transactions for less than Western Union or Moneygram.
But, Stablecoins are far less of an investment on their own. Without the proper use of Lending, Yield Farming, and Liquidity Providing they do not appreciate on their own. Only when these tokens are locked into DeFi platforms can someone grow their Stablecoin investment. These Stablecoins are used as collateral in thousands of projects spanning across the Blockchain space.
What are the Most Used Stablecoins?
The most used and valuable Stablecoins operating in the Cryptocurrency space are:
- Tether $USDT: with $80 Billion Digital Dollars moving across hundreds of protocols.
- USD Coin $USDC: at $55 Billion
- Binance USD $BUSD: at $18 Billion
- Dai $DAI: with $9 Billion in Total Market Value.
All Stablecoins in combination, excluding Tether, equal roughly $100 Billion and to put it into better perspective on how far ahead Tether is, the entire Market Value for runner-up $USDC, is less than the Daily Trading activity for Tether $USDT.
Who Should Use Stablecoins?
With these Stablecoin protocols currently in operation, there’s absolutely no reason to ever use those old, outdated, and overpriced money transfer systems.
Stablecoins allow you to keep more of your money going to where it needs to go by cutting out all the middle-man and removing them from your personal transactions. With stablecoins, you’re only ever going to pay the network itself to move tokens from one wallet to another.