6 Ways Stablecoins Are Shaping the Future of Digital Assets
Updated: Aug 28
Stablecoins are digital currencies with values tied to an underlying asset. Their market capitalization rose over 650% in the past two years. This article explores key benefits of stablecoins systems, highlighting the use cases through which stablecoins are increasingly shaping the global financial industry.
While stablecoins are a fairly new addition to the finance world, their adoption has grown dramatically in recent years. Between 2018 and 2020, the market capitalization of stablecoins has steadily risen from 2 billion to 15 billion dollars (USD) – an increase of 650%. Stablecoins are digital currencies where value is tied to one or more underlying assets. While there are many different types of stablecoins, the majority of these, such as USD Coin (USDC), Tether (USDT), and the Gemini Dollar (GUSD), are pegged to the US Dollar (USD) on a 1:1 ratio. This system imbues stablecoins with many useful qualities, such as rapid settlement, price stability, privacy, and scalability. What are some of the use cases in which increasing numbers of consumers, investors, and businesses have deployed stablecoins?
Simplifying and Protecting the Trading Process
The original purpose of stablecoins was trading, and this use case grows in importance as crypto trading becomes more widespread and institutionalized. Before stablecoins, the only way to buy altcoins (such as Dash, Monero, or Neo), was a two-step process. First, you would need to convert a fiat currency (such as US Dollars), into Bitcoin (or another high-volume cryptocurrency). Second, you would convert that Bitcoin into your desired altcoin. Similarly, selling the altcoin was also a two-step process. This system was highly problematic. Not only did the multiple steps waste valuable time, but it also subjected the trading process to unnecessary price fluctuations, due to heavy reliance on Bitcoin as the basis for value. Stablecoins make the cryptocurrency trading process simpler and safer for investors – ranging from small-scale retail investors all the way to multimillion-dollar trading institutions.
Fueling Global E-Commerce
Before stablecoins, paying for goods and services online with Bitcoin or with traditional credit cards was largely a question of tradeoffs. While Bitcoin is private and processed with mostly fixed fees, its transactions can take up to a day to process, and price varies minute to minute. On the other hand, while credit cards are convenient, widely accepted, and offer price protection, customer information can be easily stolen, and cards usually charge high fees for international transactions. Stablecoins, however, possess positive qualities of both methods. They have much faster transaction times than Bitcoin, without its characteristic price volatility. Further, they offer lower transaction fees globally, and limit customer financial risk compared to credit cards.
Empowering the Unbanked
Unbanked individuals do not have access to a checking or savings account through a bank. Reasons for being unbanked include living in remote locations, as well as experiencing natural, political, macroeconomic, or personal hardships. In 2017, 1.7 billion adults – 23% of the global population – lacked bank account access. Banking with stablecoins can be as simple as accessing an internet-enabled mobile device, so it eliminates many of the social, political, economic, and geographic hurdles found in the traditional banking system, ultimately opening a whole new realm of possibilities to nearly a quarter of the world’s population.
In 2020, the inflation rate of 21 different countries, representing over 1 billion people, exceeded 10%, with Venezuela topping the charts at 15,000% inflation. In contrast, the US Dollar has historically experienced inflation of 1-3% annually. Asset-backed stablecoins provide an invaluable potential for over 15% of the world’s population to safeguard their financial resources in a portable, accessible, and private manner despite the inflation plaguing their local systems.
Reducing Cost and Complexity of Remittances
In 2019, the global population sent a total of $554 billion internationally to friends and family through a process known as remittance. Established companies such as Western Union historically charge anywhere from several to several hundred dollars per remittance, and take up to several days to process. In contrast, stablecoins can be sent in minutes, with most transactions costing less than a dollar. This revolutionary opportunity puts more money into the hands of low- and middle-income families that need it the most – and more quickly at that.
Gaining Mainstream Adoption
Recognizing their long-term potential, a number of Fortune 500 companies in recent years, including J.P. Morgan and Facebook, have been creating and testing their own stablecoins. Imagine being able to send money to friends and businesses all over the world – no paying hefty transaction and conversion fees, no waiting on lengthy transaction times, and no sacrificing the privacy of your personal data and security of your money. Stablecoins are a revolutionary technology with widespread applications that are just starting to realize their full potential!