Despite the apparently limitless benefits of price fluctuations, the fast fall in value of bitcoin and other cryptocurrencies over time may not be as entertaining. It is not recommended for everyone to engage in such gambling. There is a solution in the form of stablecoins. Compared to other cryptocurrencies, they are less vulnerable to price decreases since they are backed by real-world assets. This makes them less volatile than other, more volatile cryptocurrencies.
Because it is backed by tangible assets such as the United States dollar or gold, this kind of cryptocurrency is intended to provide more stability than other types of cryptocurrency. Cryptocurrencies that are not linked to a stable asset, such as U.S dollar, derive their value from peer-to-peer technology and software-driven encryption, as opposed to stable assets.
In this article, we will explain why stablecoins are one of the best ways to protect your wealth against inflation, how to do this, and many more topics.
Stablecoins combine the advantages of a cryptocurrency with low volatility with the mobility and accessibility of a traditional money. Additionally, since they are not governed by centralized authorities, the usage of decentralized cryptocurrencies is attractive because it allows for quicker money transfer times, simpler access to financial services without the need for apps, and protects the privacy of financial information. Stablecoins, which are digital options backed by conventional currencies, are a centralized method to hold wealth since they provide digital choices backed by existing currencies.
Stablecoins have a function other than just generating income. Rather of growing together with their ideals, they are constructed to maintain them. As a result, it may benefit a greater number of individuals as compared to other cryptocurrencies, which may suffer severe losses as a result of excessive volatility.
Stablecoins have a value that can be guaranteed to stay steady, despite the fact that their value fluctuates. This characteristic of stablecoins makes them an appropriate safe haven asset because, unlike cryptocurrencies such as Bitcoin, whose value fluctuates dramatically with each trading day, investors who use stablecoins to store value do not run the risk of losing money because they retain complete control over their investments. During Venezuela’s current political and economic turmoil, many people who have defected to the nation have been storing their money in stablecoins in order to escape seizure of their fiat currency, according to reports. This demonstrates the significance of both price stability and the fact that stablecoins are held in their own custody.
To decrease their crypto exposure without fully cashing out in order to cut costs, exchanges and institutional traders may use stablecoins to their advantage. To provide an example, consider stablecoin usage on the biggest centralized exchanges where stablecoins were used in 40 percent of Binance transactions and 80 percent of Huobi transactions, respectively.
Walmart is expected to begin accepting payments using its own stablecoin in the coming years. Businesses who accept stablecoins as payment are able to avoid the 2–3 percent transaction costs that banking institutions charge as part of their overall processing expenses.
In terms of remittances and cross-border payments, overseas employees are confronted with significant challenges. International money transfers are very expensive. Many migrant workers in Asia, for example, spend $12 in international transfer fees per month, which is equivalent to half a day’s earnings. A concrete example of the usefulness of the blockchain in addressing the remittance issue is provided by Ripple’s XRapid (XRP) cryptocurrency. Stablecoins, on the other hand, have the potential to reduce costs even more since they are inherently price stable.
When settlements are paid out, it is frequently impossible to deliver them instantly since the payments are governed by regular banking hours. Due to the distributed nature of stablecoins, they operate 24/7 and are not impacted by business hours like banks. In that case, settlements can be settled instantly with stablecoins.
By using smart contracts to automate escrow, stablecoins fully automate the process of escrow without the use of institutional intermediaries. A stablecoin smart contract is fully auditable since it is based on the blockchain. A stablecoin also supports escrow smart contracts, which, for large escrow holdings, might suffer losses from volatile prices.
In terms of interest rates, stablecoin lending offers double-digit interest rates to investors. A significant part of this demand stems from the fact that stablecoins are used as a trading currency within institutions. Decentralized crypto lending platforms offer stablecoin returns that can equal or exceed 15% compared to the 2.15 APY offered by banks’ savings accounts.
An estimated 18 million Americans do not have bank accounts. However, in order to open stablecoin “bank accounts,” all you need is an internet connection. A stablecoin can be used as an alternative to bank failures and has no bank hours or downtime. Underbanked businesses can also use stablecoins as an alternative form of banking as a way to store their assets securely.
Platform-specific tokens are typically accepted by decentralized applications that have payment integrations, such as Ethereum. Due to ether’s fluctuating price, payments made to decentralized application creators are affected by its fluctuating market price. Payment price reductions may have an effect on the development and sustainability of these decentralized apps. Stablecoins, which may be used to pay for decentralized apps, help decentralized applications significantly.
A faster financial process can be achieved with stablecoins. Through smart contracts using stablecoins, escrow can be streamlined. Due to the blockchain’s independence from a central institution and its set hours, stablecoins can be used for settlement and banking at any hour.
Processing fees for credit cards ranging from Visa, MasterCard, and American Express average about 2 percent per transaction. Small businesses as a result charge higher credit card prices, prohibit certain cards that have higher fees, and even only accept cash. The use of stablecoins can help businesses and consumers circumvent these high transaction costs.
A cryptocurrency can be used anonymously, borderless to store value, which is proving to be a necessity for millions of people. Fiat money cannot be taken out of Venezuela. The money cannot be sent internationally through banks and it cannot be taken from them at the border because it will be seized. A result has been the use of Bitcoin among Venezuelans. Although stablecoins don’t fluctuate significantly like Bitcoin and the Bolivar, stablecoins are a better store of value than both.
Blockchain transactions can be viewed by anybody with internet access using a blockchain explorer. Through regular audits, stablecoins can offer complete transparency into the process that backs them.
A stablecoin is made up primarily of code, so it can easily be enhanced to meet changing needs. Branded stablecoins like Walmart’s upcoming stablecoin can include loyalty programs. A loyalty program built around a company’s “branded” stablecoin directly integrates loyalty into the user experience. Using the app, users could easily check their balances of stablecoins and loyalty rewards, eliminating the hassle of loyalty cards. Stablecoin integration with loyalty programs maximizes convenience in a flooded loyalty market.
One of the most important advantages of stablecoins is that they safeguard your money from economic downturns.
Using asset-backed cryptocurrencies, you may securely keep your money and riches in the digital realm. They may also be accessible from anywhere in the globe using a computer or a smartphone thanks to the blockchain technology. Yes, absolutely, whenever you have access to the internet.
In addition, a stablecoin safeguards your investments from the effects of inflation. Since the beginning of inflation, many nations have seen their economy collapse, and some of these countries are still crumbling.
In the year 2019, Venezuela, Zimbabwe, and South Sudan were all still suffering cripplingly high inflation rates at the time of the report’s publication. According to data collected by Trading Economics, Venezuela (9,585 percent), Zimbabwe (161.81 percent), and South Sudan are the most populous countries in the world (24.47 percent ).
There does not seem to have been much of a shift in the perceptions of citizens in these countries in recent years. In addition to a scarcity of goods and services, real earnings have dropped, and savings are now worth less than they were before.
Furthermore, inflation makes the economy uncompetitive and, in the long term, inhibits investment and economic development, as previously stated. Venezuela started suffering inflation in 2013, after Nicolus Maduro’s ascension to the presidency.
At the end of 2014, the country had the world’s highest inflation rate, which was 69 percent, according to the International Monetary Fund. In 2015, it hit 181 percent, and in 2016, it surpassed 800 percent, which was the greatest inflation rate in history.
As a result of monthly inflation rates exceeding 50 percent by 2017, the country was now suffering hyperinflation, and the national currency (the bolivar) had become almost worthless by 2017.
Because Colombia demands payment in Colombian, Brazilian, US, or European money, foreign currency has emerged as the sole viable currency for commerce in the nation. Colombian, Brazilian, US, and European currencies are all accepted.
As a result of the crisis, over 4 million individuals (or a tenth of the nation’s entire population) have left the country, bringing the total number of refugees to nearly 5 million. Latin America is now witnessing the greatest mass exodus of migrants in history.
It is not a new occurrence to see such levels of hyperinflation. During World War I, during the years 1913 and 1919, inflation was very high.
We can see that inflation is an issue right now and has been for a long period of time. However, there is a solution to the issue. A stablecoin provides individuals who are suffering from a down economy with a means of safeguarding their assets against inflation.
Among the several benefits of stablecoins a hedge and protection against inflation is one of the primary drivers of growth and adoption especially in countries with weak financial systems. The example of Greece and Venezuela are too strong to ignore and stablecoins provide a better, safe and sustainable alternative to weak currencies across the globe.