Cryptocurrencies like Bitcoin and Ethereum are all too well known for their extreme price variations. Stablecoins are a distinct class of cryptocurrencies built to sustain a steady value. Hence the name stablecoin.
Stablecoins have their denominations indexed to the value of the US dollar, which explains why their value is more stable than other cryptocurrencies. Some of the most popular stablecoins include Tether USDT, USD Coin USDC, and Binance USD BUSD among others.
The total market of stablecoins as of January 2023 is USD 138.4 billion, which is indicative of their high adoption rates in the market. Expert estimates say that the usage of stablecoins will increase globally by up to 250 percent by 2028.
Why are stablecoins popular?
The primary reason is the stability that traders and investors can enjoy among the notoriously volatile cryptocurrencies. But there are several other significant reasons too.
- Quick and cost-effective transactions – Settlement times for stablecoin transactions are much less than other cryptocurrencies. Besides, the fees involved are also comparatively lower than conventional modes of payment. This means stablecoins make for faster payments that are reasonable on the pocket too.
- Safeguarding against volatility – Since the value of stablecoins like USDT or USDC is tied to the dollar, they are not prone to extreme price fluctuations like other cryptocurrencies. So when Bitcoin or Ethereum suddenly plunges, investors can choose to shift their funds into stablecoins to guard against heavy losses.
- Transparency – Every stablecoin transaction is recorded on the underlying blockchain platform. This offers the transacting parties visibility of payment progress at every step.
Use cases of stablecoins
With the popularity of stablecoins growing as viable financial assets, they are being used in various ways, like –
- Seamless cross-border payments
Stablecoins like USDC are increasingly being preferred for cross-border payments, removing the need for third-party financial organizations. This allows individuals and businesses to settle international transactions faster and spend lesser on transactional fees.
Stablecoins can be pegged to any other stable asset like gold or some fiat currency, but tying their value to USD promotes seamless commercial transactions internationally. Owners can treat their stablecoins like the virtual version of the dollar and pay for services or products. They will also not have to worry about price fluctuations in the market and its depreciating effects on the fiat currency value when it is converted into cryptocurrency.
- Easy accessibility and market liquidity
Stablecoins can be easily purchased using fiat currency and converted back into cash easily. Due to this easy liquidity, cryptocurrency traders can use stablecoins as one of the two currencies in a trading pair to swiftly move positions without exposing themselves to risks.
Stablecoins also offer that stability to preserve their asset value without converting them into fiat currency. Besides, they can also be used for global trading on any exchange allowing new investors to experience newer markets worldwide.
- Micro-transactions
Similarities with the US dollar have rendered stablecoins a useful and efficient potential alternative to the dollar. Stablecoins are ideal for bridging the gap between fiat currencies and cryptocurrencies, supporting smooth transactions. As such, stablecoins have gained worldwide traction today, especially in the global economy’s consumer-serving sectors.
People can use stablecoins to make small and quick payments for services or goods purchased without needing traditional banking services. This can be particularly useful for small business owners who operate in cash-based ecosystems.
- Gaming
Stablecoins are extensively adopted in the gaming industry, either in the form of in-game currency, in-app purchases, or for the purpose of gambling, and can be used to convert in-game currencies into dollars.
With gaming dApps constituting almost 30% of the entire share of decentralized apps in the market, stablecoins have helped resolve many issues in the gaming industry. Since stablecoins are not prone to extreme price fluctuations and also support interoperability, they can help rebuild the economy of the gaming industry.
- Savings
Holding money in the form of stablecoins is an underrated but very practical way of achieving financial security and stability. This can be especially helpful for people in regions that are known for unsteady domestic currencies, economic disturbances, and inadequate banking facilities. Those who have limited or no access to conventional savings accounts can use stablecoins to store money without having to worry about any lock-in or vesting period.
Stablecoins can offer excellent yields from their very high-interest rates in the range of 8% APY. Those who do not want to trade in cryptocurrencies can use stablecoins as a safe haven to hold their money and enjoy high-interest yields in time.
Final words
The US government is already contemplating introducing crypto legislation policies for better regulation and security. With news of the US government’s plans to regulate stablecoins and their comparison with statal CBDC, the adoption rates of stablecoins are projected to shoot up further, building momentum to the uses cases
That being said, implementing appropriate infrastructure will be of utmost importance for efficiently managing commercial stablecoin transactions going forward. This is because, like other cryptocurrencies, stablecoin transactions are also irreversible.
And most importantly, transactions must ensure absolute security and privacy for the benefit of stablecoin users. Using escrow wallets powered by smart contracts can offer robust security coverage, warranting privacy and transaction security, and preventing fraud and errors. Blockchain escrow services from Uniscrow can prove to be a game-changer in promoting easy and effective management of commercial cryptocurrency transactions, including stablecoins.