Stablecoins have taken the world by storm as digital assets pegged to “stable” reserves, like a fiat currency, precious metal, or other commodities such as oil. Since these cryptocurrencies have this backing, they often faceless volatility than digital currencies that don’t.
Since multiple kinds of Stablecoins exist, users may select which asset they would have greater trust in as a backing. For example, gold-backed crypto may provide users with a hedge if they have confidence in the price of gold. Alternatively, those who are confident in the U.S. dollar may stray towards a USD-backed Stablecoin.
In practice, this provides many benefits to users. Below some of the major ones have been listed.
1. Lower Transaction Costs
Today, credit card processing fees among major credit card companies may be up to 2% per transaction or more. For this reason, smaller businesses may have a hard time absorbing these costs, in turn passing the added cost down to the end consumer. Fortunately, with Stablecoins high processing costs can be greatly reduced and even removed, benefiting businesses and consumers alike.
2. Accelerated Transaction Times
Stablecoins use blockchain technology, the same backing used by Bitcoin and Ethereum. As a result, transactions are conducted 24/7 and are, thus, significantly faster than a centralized bank.
3. Make Payments Anywhere
Again, similar to other cryptocurrencies, Stablecoins allow payments to occur anywhere, regardless of borders, only while maintaining a consistent price. The added value against traditional currencies is that users don’t incur extra costs for sending a Stablecoin payment to another country.
4. Complete Transparency
Stablecoin transactions are all conducted on a distributed ledger, offering full transparency to traders. Anyone with the internet can see exactly which wallets their coins are coming from by using a blockchain explorer. Additionally, some Stablecoins will conduct regular audits to further guarantee that their assets in reserve exist as stated.
Each Stablecoin comprises a programmable code, which allows features to be added or issuing organizations to make adaptations. For example, large retailers may incorporate their loyalty programs into a Stablecoin to integrate two user experiences.
Alternatively, other organizations are experimenting with adding coupon or dividend payments that users could receive directly through Stablecoins. This feature would be especially effective when dividend payments are small, and users have little interest in making a trip to the bank to deposit a few dollars.
Major Stablecoin Use Cases
The advantages listed above manifest into several key use cases, which may be helpful when considering the benefits of Stablecoins.
1. Making Payments
Cryptocurrencies aim to provide consumers with an easier way to make payments. Unfortunately, due to volatility, conducting transactions, especially small ones, is not practical, with prices fluctuating in the time it takes to initiate the purchase and complete the payment. However, with a stable cryptocurrency, users can transact online in a simpler way and take advantage of all the benefits of digital currencies.
2. Access for the Unbanked
To create a bank account in the United States, customers must provide their social security number, government-issued photo ID, and a minimum opening deposit amount. Although the exact documentation may vary, the bottom line is that a good chunk of the world’s population may not have the right documentation or face other limitations preventing them from creating a bank account. Stablecoins allow any user to open an account, so long as they have Internet access.
3. Protecting Assets in a Downturn
Since Stablecoins are stable, they can offer a source of protection when markets dip. Protecting asset value can also help countries subject to high inflation rates, where the dollar may devalue to almost nothing at any point. Investors may then choose to move their holdings into primarily Stablecoins as a temporary or longer-term solution.
A final use case worth considering is trading. Cryptocurrency exchanges typically charge large fees when conducting transactions between fiat currencies and cryptocurrencies.
Therefore, cashing out as an investor awaits their next opportunity may be costly. With Stablecoins, users can “cash out” without removing their holdings from digital currencies and making them easier to access when conducting a new trade.
The Makings of a Killer App
With many benefits and use cases apparent, Stablecoins might just be the killer app that blockchain needed to become mainstream.
That said, before purchasing any Stablecoins, investors are encouraged to research the issuing organization in-depth. While the concept is good, bad players still exist in the market.