There’s no doubt that blockchain has the potential to influence every industry. Among plenty of its emerging use-cases, blockchain technology aims to establish new and improved payment systems for people worldwide. Blockchain technology aims to introduce a secure payment system that is easy to access, transparent, decentralized, agile, and uses cryptocurrencies at the core of every system.
However, with over 10,000 unique assets, the cryptocurrency market is still in its nascency. And while the market has shown potential to reach $2 Trillion in market capitalization, it’s still only a decade old compared to the antique precious metals market (like gold), which is worth around $10 trillion.
Considering the market is just a decade old, over 10,000 unique projects have taken Satoshi Nakamoto’s lead and introduced their vision for the blockchain industry. Be it introducing projects with proof of stake systems or introducing smart-contract-based platforms, the industry produces some of the most promising projects we have seen in years.
Although the mass production of emerging assets is beneficial for the industry; however, it amplifies the volatility in the market. The introduction of new assets, the media buzz surrounding it, potential pump and dump schemes, and other variables often lead to amplifying the effects of volatility in the market.
The emergence of Dogecoin and other meme-coins puts the volatility of the market into perspective. Even leading cryptocurrencies such as Bitcoin have been a victim of the market’s volatility and sensitivity to speculation. Case in point: Bitcoin hit a record high of $65,000 price per bitcoin in early May; however, after the crackdown from the Chinese governments, a few jabs from institutional players and celebrities, it fell almost 50% and is worth around $33,000 today.
While cryptocurrencies envision a globally secure, decentralized, and stable digital assets; their prices however are highly volatile and are very sensitive to speculation. People around the world have lost and gained millions of dollars overnight.
This reflects how unpredictable and risky the cryptocurrency market can be, especially as a legal tender and sole medium of exchange for goods and services. However, issues like these don’t go unnoticed in the Cryptocurrency ecosystem, and fortunately, platforms have introduced solutions to this rising issue: Stable coins.
What are Stable Coins?
Cryptocurrencies are highly volatile which is why it hasn’t yet infiltrated global adoption. While Cryptocurrency projects often generate and lead ecosystems of their own, every one of them is based on blockchain technology which essentially gives the digital asset it’s value. The decentralization, immutability, and features offered by blockchains helped catalyze and birth more than 10,000 different cryptocurrencies today. Since one of the greatest drawbacks of the Cryptocurrency market is its notorious volatility, the crypto ecosystem went ahead and introduced a solution to the problem via stable coins.
Unlike cryptocurrencies, stable coins possess a fixed value. Stable coins are digital currencies pegged to underlying assets. These assets could be anything from precious metal such as gold to fiat currencies such as the US Dollar. Stable coins, at its core are cryptocurrencies with a fixed value, they’re based on blockchain technology, and they experience many of the same benefits such as transparency, security, privacy, and accessibility; however, without the volatility that is existent in other cryptocurrencies.
Today, the stable coin’s market is worth over $114 billion. Stable coin were introduced with a vision to be utilised the way cryptocurrencies were intended.
What are Stable coins pegged to?
The United Nations recognises around 180 unique fiat currencies around the world. The Euro, Yen, and the U.S. Dollar, including other leading currencies of the world are a part of these 180 currencies. These fiat currencies are used as a means for exchanging goods and services, paying taxes and store of value across global economies.
Despite inflation, money printing, fluctuating exchange rates, and other variables, the value of these currencies are often subject to negligible changes throughout the day. However, they’re not as volatile as the cryptocurrency market. One of the leading reasons why cryptocurrencies aren’t used as much around the world.
Case in point: A person can purchase a cup of coffee for $2 for it today knowing it’s unlikely that its price would drop or increase by 70 cents tomorrow. However, with cryptocurrencies, its inherent volatility, and its unpredictable nature, you can never be sure if the cup of coffee is going to be worth the same price even after an hour!
Stable coins, today, are a form of digital money, aimed to mirror traditional, fiat currencies. As mentioned above, stable coins are collateralised by the value or pegged to the value of an underlying asset. Now that underlying asset may differ from coin to coin. Majority of stable coins are pegged close to a 1:1 ratio with popular fiat currencies, such as the U.S. dollar,Y en, or the Euro, rendering them to be easily traded on exchanges.
However, like we have mentioned stable coins can also be pegged to precious metals, such as silver, gold, platinum, and more. They could even be collateralised by the value of other cryptocurrencies!
What do Stable coins bring to the table?
Due to their design stable coins are not subject to extreme volatility. Let’s talk about a case that took place in 2010. A person bought a pizza for 10,000 Bitcoin, which was equivalent to $30 at the time. Today, at the time of writing, the same order would cost over $328 million — all as a result of Bitcoin’s rise in price.
The common display of aggressive swings in price has resulted in a deep fear of adopting cryptocurrency payments among business owners and organisations. Businesses today are opening up to accepting cryptocurrencies. Despite companies like Tesla, Paypal, and other payment giants are easing up to cryptocurrencies, speculative moves like that of Tesla backing out from accepting payments in Bitcoin affect market volatility significantly.
Since stable coins share the benefits of blockchain technology, they were often used as an escape plan or risk management tool in case of a potential market crash. Traders convert their crypto assets to stable coins within seconds on a single exchange, saving themselves from potential market losses. Without stable coins, asset owners would have had to convert their asset into fiat currencies which would’ve been unfeasible at the time.
This was one of the many things stable coins brought to the table; however, today, stable coins represent something a lot different. They have grown into a whole ecosystem on its own. Stable coins can be used for general commerce similar to fiat currencies, but with the power of blockchain technology its computationally backed and secure.
Thanks to stable coins, we are finally able to pull out our phones, scan a QR code, and pay for our morning coffee with cryptocurrencies. Even hotels in various parts of the world are easing up on the idea of accepting stable coins as a means of payment for their services. Thanks to stable coins, we can use cryptocurrencies the way it was dreamt of.
Stable coins are also suitable for cross-border payments, since it doesn’t involve any conversion of different traditional fiat currencies and there is no centralised entity charging overbearing fees for the conversion or transfer of funds. A person in Mexico could receive USD-backed stable coin in minutes without the need for converting them into peso and losing a massive percentage to fees, which really exhibit the power of stable coins.
Stable coins also show great promise in a variety of digital financial services, such as alternative loan issuance, lending and borrowing, and other services that tend to be hard to gain access to with traditional banks.
Stable coins have changed the lives of millions of families that live in developing countries. Today workers often migrate to other countries thanks to better opportunities and higher-paying jobs in developed parts of the world. They often rely on services like Western Union to send money back to back home. In reality, this process can be very slow and costly. Workers often have to bear high-fees, and the cost of time to help feed their families.
With rapid transactions, low fees, Stable coins allow workers and their families in different parts of the world to use digital wallets and instantly receive stable coins. Cherry on top, international freelancers can instantly get paid in stable coins as well. Considering the global remittances market is worth around $800 billion, there’s a massive opportunity for stable coins.
All in all, stable coins have myriad real-world use cases. From being a potential hedge to speculation in the cryptocurrency trading markets, to being a secure and cheap alternate for sending remittances and cross-border payments, stable coins enjoy a growing market adoption.
Stable coins bring a lot to the table and it’s not long before they are widely accepted as the legal tender of the world.
With a market worth over $114 billion and a whopping daily trading volume of $52 billion, it’s only a matter of time when stable coins will globally dominate other currencies of the world. Stable coins are the real-life representation of what cryptocurrencies were essentially introduced for; however, they’re pegged to centralised currencies. We can only imagine how cryptocurrencies will change the world once the market is more stable. However, until that idealistic dream is a reality, we can live off of stable coins to do the job.