Bitcoin seems to be a very attractive but risky asset. However, there is a safer alternative – stablecoin. It has all the advantages of cryptocurrencies, while its price is stable.
There are at least 200 types of stablecoins in the world nowadays, some of which are already in circulation, and the rest are under development. Two currencies pegged to the US dollar, Paxos Standard (PAX) and Gemini Dollar (GUSD), are already approved and regulated by the NYS Department of Financial Services. At the end of 2020, the total value of stablecoins increased by 300% compared to last year and exceeded $20 billion.
What are stablecoins?
Stablecoins are digital money that mimics the properties of traditional currencies. As a rule, they are pegged to the dollar or euro exchange rate (usually in a 1:1 ratio), gold, or other assets, including cryptocurrencies.
Why do we need stablecoins?
Stablecoins have the benefits of cryptocurrencies (transparency, reliability, immutability, digital wallets, fast transactions, low fees, and privacy), and they are also stable and trustworthy like traditional currencies (US dollar or euro).
Initially, cryptocurrency holders used stablecoins to save money in case of a market crash. If bitcoins became cheaper, they could be converted in just a few minutes to avoid losses. Without stablecoins, bitcoins would have to be converted into traditional currencies. Such transactions are not possible on every platform, and a significant commission is charged for them.
In addition, stablecoins are useful in cases when you need to make fast and secure international payments: both for a migrant worker who transfers money to a family, and for a large business that needs a cheap and efficient way to settle with foreign suppliers.
Using stablecoins in real life
Here are just a few ways stablecoins can be used for:
- Day-to-day financial transactions;
- Optimized regular payments and card-to-card transactions;
- Fast and affordable money transfers for migrant workers;
- Protection against hyperinflation and market volatility;
- Improved exchange of cryptocurrencies and a decrease in the impact of bitcoin on the market.