2021 has been an exciting year for stablecoins so far. According to the most recent CryptoSlate data, stablecoin performance improved during Bitcoin’s dip in May of 2021, with net deposits rising by 155.5 percent.
However, it is essential to note that stablecoins, in contrast to other cryptocurrencies, do not always follow the Bitcoin pattern, demonstrating that stablecoins are distinct from other cryptocurrencies in this regard. Furthermore, it seems that during times of crisis, individuals seek stablecoins as safe havens from the volatility of the financial markets.
Stablecoins have been the subject of intense debate in recent months, not just among regulators and conventional investors but also among cryptocurrency community members. Let’s take a look at what a stablecoin is and why it has gained such popularity.
Brief Intro to Stablecoins
Generally speaking, a stablecoin is a cryptocurrency that has its value linked to an underlying
asset, such as a government-issued currency such as the United States dollar, a precious metal such as gold, or even another cryptocurrency.
To keep the price of stablecoins coupled with the underlying assets steady, issuers have experimented with a variety of various ways throughout the years. Currencies pegged 1:1 to the U.S. dollar that are backed by reserve assets whose dollar worth matches the tokens’ circulating quantity. Such stablecoins value closely matches to that of the dollar down to a few decimal points. Tangible assets also support other cryptocurrencies. One example is a cryptocurrency, which represents one troy-ounce gold represented by a London Good Delivery bar.
Other types of stablecoins are algorithms-powered stablecoins, which can either be centralized or decentralized in their implementation.
The Rise in Stablecoins usage in Cryptocurrency trading in 2021:
Prior to the introduction of stablecoins, the vast majority of cryptocurrency traders exchanged their coins against government-issued money and against other cryptocurrencies.
Cryptocurrencies and stablecoins are more efficient, transparent, and less costly than traditional FX trading methods. Their values also vary less often than those of other cryptocurrencies, which means they are potentially less vulnerable to inflation than other cryptocurrencies.
The usage of stablecoins in crypto financing is also becoming more popular in 2021. If you put stablecoins in a savings account at CoinBase, one of the firms behind the stablecoin, you may receive 4 percent interest on your investment. Interest rates may vary from 1.66 percent to 13.5 percent on some deposits, depending on the market conditions.
Reliance on Stablecoins in Crypto Winter:
As should be apparent, stablecoins vary from other cryptocurrencies in many important ways. In order to remain in the cryptocurrency market without having to deal with volatility and uncertainty, they are utilized by traders to protect themselves during bearish cycles (unless they are attempting to yield farm). This was also true in last years crypto winter where traders liquidated their positions and moved their assets towards stablecoins to hedge against volatility.
According to current market data, stablecoins are becoming more popular during negative periods. Because of the time and expenses involved in transferring money from cryptocurrency to fiat during market collapses, many traders, particularly day traders, prefer to retain their money in cryptocurrencies rather than withdraw it from cryptocurrency to fiat during market crashes.
The data does not indicate if stablecoins have always been regarded in this manner or whether this is a new trend. A fresh discovery of this kind suggests that traders are becoming more confident in crypto-technologies. In terms of the market, this is an excellent development.
Another one of the most intriguing outcomes of traders transferring their money away from Bitcoin and towards stablecoins is that it demonstrates just how varied the cryptocurrency markets really are. Consequently, the cryptocurrency market as a whole is often portrayed in the media as being identical to the Bitcoin market.
Stablecoins are in direct opposition to this. It has been shown time and time again that Bitcoin is not the only cryptocurrency that is in sync with the crypto industry.
Have stablecoins matured in 2021?
Even under challenging circumstances, people’s confidence in stablecoins demonstrates that they are comfortable with them. This is likely to be beneficial to cryptocurrency businesses since it will increase adoption.
Stablecoins have developed in tandem maturing significantly in 2021, which may account for the increased confidence in the market. Stablecoins are a sub-field of cryptocurrency that is growing in popularity. They have gone through a number of exciting transformations. Since the introduction of the first stablecoin, the market has been less controlled by it.
Many stablecoins had a very steady market trajectory since late 2020 and also in 2021 so far, even though the crypto market had a difficult journey. This is an indication of the stablecoins maturity and adoption since it indicates that the currency is on the verge of satisfying its obligation to be adequately linked to the dollar.
Because of the fact that stablecoins have become more functional and visually attractive in times of market upheaval, individuals have begun to utilize them during times of market instability.
Dark Times Ahead?
Because of the current economic climate, some pessimists may develop a bad view of stablecoins. This position is justifiable in light of the increasing adoption of central bank cryptocurrencies across the globe in recent years.
Stablecoins seem to face an unclear future, since the digital yuan is approaching the end of its life cycle and other stablecoins are following closely. Every chance is being taken advantage of by regulators and detractors alike to attack stablecoins.
However with that said, there are many positives in favor of stablecoins. And despite the regulations decentralized stablecoins will continue to function normally.
Despite a governmental crackdown, stablecoin adoption rates and the sheer quantity of stablecoins on the market may be indicators of a promising future for the cryptocurrency industry. The capacity of stablecoins to be supported, on the other hand, is critical to their long-term viability.
Due to the market acceptance at such a massive rate, even regulators are hesitant to regulate the stablecoins market.
Strides in the DeFi space:
Stablecoins, which are digital currencies that are backed by collateral reserves, have garnered significant momentum in recent years. Stablecoins earn high-interest rates when they are lent or borrowed on the market, making them an appealing currency for traders and decentralized financial systems. A DeFi platform, which uses distributed ledger technology (DLT), such as blockchain, is the most common way for transferring assets between parties without the need for an intermediary to be involved. They benefit all stakeholders as a result of decentralizing currency regulation.
To meet this requirement, stablecoins must be able to make payments without causing delays or requiring the use of intermediaries. Stablecoins may assist by overcoming these constraints. It won’t be long until there is a stablecoin backed by every fiat currency in existence, or a basket of currencies, given the rate at which new stablecoins are being introduced.
Because of the trend toward central bank digital money, there is a potential that the government may issue collateralized stablecoins in the future (CBDCs). Such currencies, on the other hand, maybe susceptible to all government monopolies. When it comes to people who prefer decentralized tokens, stablecoins with crypto-backing are a viable alternative.
Even though they are decentralized, Bitcoin and Ethereum are still having difficulty gaining widespread adoption. Adopting and accepting fiat-backed stablecoins as a trustworthy security alternative will be increasingly probable shortly. Stablecoins are digital currencies that may be used as a substitute for fiat money. Even yet, the potential of stable coins to fully replace fiat currencies seems to remain remote since fiat currencies continue to outperform stable coins in circulation by a significant margin.
The verdict: are Stablecoins on the rise in 2021?
Along with the advancement of stablecoin technology, the sector has seen an increase in the number of projects being tried out. In recent months, algorithmic stablecoins have gotten the most attention. In order to maintain a fixed price, these coins use algorithms to impose an anticipated value onto a coin mathematically.
The prognosis for the stablecoin sector is excellent, thanks to exciting new innovations, increasing maturity, and a strong capacity to resist negative behavior in the short term, among other factors. A favorable development for stablecoins is excellent for the whole crypto-sphere since stablecoins are critical to cryptocurrency adoption. So it’s true that stablecoins have gained a tremendous momentum in 2021, and by the looks of it it shows no signs of stopping anytime soon.
For the cryptocurrency sector as a whole, the year 2021 has been a roller coaster ride, with unprecedented adoption of cryptocurrencies taking place over the course of the year. Every aspect of the cryptocurrency market has been affected by the meteoric growth of the cryptocurrency sector, and it is safe to say that stablecoins have been the driving force behind this expansion.
In light of these considerations, the cryptocurrency industry has designated stablecoins as one of the most significant asset classes available. With a market value that exceeds that of Bitcoin forks like as Litecoin and Dogecoin, stabelcoins are slowly becoming a force to be reckon with.