Stablecoins are King: Why Stablecoins are Important in Cryptocurrency
This article is a tribute to stablecoins, the most underrated crypto assets with immense value that have continued to offer stability both on the blockchain and off-chain. By analyzing their inherent characteristics, it becomes obvious that stablecoins are king.
- Stablecoins offer stability and are resistant to the frequent volatility that characterizes the blockchain
- Stablecoins serve as the bridge that connects the world of cryptocurrency to fiat
- Stablecoins also serve as the asset for a global unified exchange of value
What is a Stablecoin?
Stability is its hallmark and efficiency is its watchword. Stablecoins are a class of crypto assets (digital currencies) whose values are pegged to existing traditional fiat currencies. Stablecoins act more like the digital versions of globally known fiat currencies such as the Euro, and dollars.
Some of the most notable stablecoins on the blockchain include USDT, USDC, BUSD, DAI, and TUSD. These digital assets are directly pegged to the US dollars and their values are always equal to the unit of the American dollar. This means that, for instance, 1 USDT=1USD.
Although their values are pegged against fiat currencies, still the means of maintaining this stability is derived in various ways. Broadly there are two distinct categories of stablecoins and they are;
- fiat-backed stablecoins: for every digital asset created, there is always an equivalent in a traditional bank reserve, and;
- Algorithm-backed stablecoins: whose values are pegged against another crypto asset. Examples include DAI and Terra USD.
Stablecoins and Stability
No time is this more evident than now when the entire cryptocurrency market outlook is grim and not encouraging. Although stablecoins do not have the capacity to increase in value as altcoins do, they make up for this by offering stability to the otherwise volatile and unpredictable nature of cryptocurrencies.
Stablecoins are resistant to fluctuating digital asset prices and the value they represent can never plummet like other types of digital assets. They serve as the balancer and create a safe haven for investors who quickly want to consolidate the value of their assets of profits made through swapping.
Bridging the Fiat-Crypto Divide
To many, the entire ecosystem that surrounds blockchain looks overly complex and incomprehensible at the moment. However, having mastered how traditional fiat currencies work, they are able to transfer that logic to stablecoins.
This further gives many enthusiasts a level of confidence knowing fully well that their venture into cryptocurrencies via the stablecoin route almost certainly guarantees the retention of the value of their investment.
In other words, stablecoins create a soft landing for enthusiasts and newbies who wish to join the crypto/blockchain caravan.
Unified Global Exchange of Value
The dollar is known to be the global unit of international exchange, but moving fiat around is not an easy task, especially for international businesses. From challenges such as government restrictions on foreign exchange to the exorbitant charges by international money transfer businesses, the barriers to international trade keep mounting.
Stablecoins create the perfect avenue for businesses to freely conduct transactions and move money to all corners of the globe. Transactions can be completed within minutes and the value transferred is exactly the same as that conveyed by the US dollars.
As a result, stablecoins serve as a symbol of international prosperity and unity that help facilitate the movement of money and other related services in the most convenient way possible.
Stablecoins certainly contains all of the characteristics of what could be tagged as a progressive currency. There is no other way to say this than to state things frankly…that stablecoins are king.
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