Stablecoins are a digital asset class that are designed to remain stable in value against a pegged external traditional asset class. They are minted on the blockchain and their values are typically backed by a single fiat currency such as the USD or Euro, a combination of currencies, or other valuable assets such as gold. Certain stablecoins are backed by the value of other crypto assets while others are known as algorithmic stablecoins that are balanced by computer code.
The goal of stablecoins is to create a reliable, less volatile environment in order to increase cryptocurrency adoption and negate the wild price swings associated with speculative assets. They offer the security and decentralization of cryptocurrencies while providing the stability of traditional fiat currencies. Adopting cryptocurrencies as a direct replacement for conventional fiat currency will require stability otherwise a volatile digital asset can compromise the purchasing power of its holder. With stablecoins, you do not have to worry about the volatility or instability of crypto prices.
The main benefits of stablecoins include:
- Little to no volatility
With a few exceptions, stablecoin price is mostly stable. Cryptocurrencies are notoriously volatile assets; therefore, stablecoins may be seen as a more acceptable class of digital asset for more risk-averse individuals.
- Protection of cryptocurrency traders
During bear market periods, cryptocurrency traders can maintain their portfolio values by flipping their more volatile cryptos into stablecoins in a matter of seconds. ****
- Global payment and remittance
Cross-border transactions with stablecoins are faster, cheaper, and more efficient than traditional methods which come with a lot of unnecessary weight and fees for payments.
The purposes of stablecoins go beyond being just a financial contract. They are the evolution of the traditional payment system with the potential to open new doors to the mainstream adoption of digital assets in day-to-day life.