Introduction
More and more countries have had to deal with (hyper) inflation in recent years. In Western countries, this inflation has been reasonably under control for the time being due to the actions of the central banks (including the ECB and FED). However, in non-Western countries there has been less good action and there is higher economic uncertainty. Residents of these countries are increasingly looking for an alternative to their own monetary currency. They then end up with a digital dollar on a blockchain - a stablecoin. Examples of this are USDC and USDT. People in non-Western countries are increasingly using these digital dollars to pay and save.
Definition stablecoins
Stablecoins are a category of digital assets that are designed to maintain a stable value compared to traditional currencies such as the US dollar or the euro. Stablecoins strive to minimize fluctuations in value. There are various mechanisms with which Stablecoins can maintain their stability. One of the most common methods is to link the value of the stablecoin to a Fiatrinuta such as the US dollar. There is a corresponding amount of dollars in custody for every stablecoin issued. This means that the value of the stablecoin is directly linked to the value of the Fiatuututa, which guarantees price stability.
Another approach is the linking of stablecoins to raw materials such as gold or silver. The value of these stablecoins is supported by the value of the raw material to which they are linked. This offers users the opportunity to diversify their digital assets and to get exposure to the value of real assets. One of the most important applications of Stablecoins is a reliable medium for transactions. Because their value remains stable, they can be used for daily transactions such as buying goods and services, as well as for international money transfers.
Advantages Stablecoins
Stablecoins are issued on various block chains, of which Ethereum is currently the most popular. Ethereum is a widely used platform for creating blockchain-based assets, and many stablecoins, such as USDC and USDT, are ERC-20 tokens on the Ethereum network. Stablecoins have the following advantages:
Global accessibility
Stablecoins offer financial services to people in regions where access to traditional banks is limited. People in non-Western countries do not have a bank account but a mobile phone. On this mobile phone they can easily create a wallet for digital assets.
Transaction speed
Stablecoin transactions are usually faster and cheaper than transactions with traditional Fiat currency. This mainly applies to international, cross -border payments. People who want to transfer money can now be done faster and cheaper than, for example, this innovation, for example, to use services from a third party such as a Western Union.
Transparency and safety
Transactions with stablecoins are recorded on a public ledger (public blockchain), which ensures transparency and traceability. This public ledger offers a high level of security, so that fraud and manipulation are minimized.
Programability
Stablecoins can be programmed to perform Smart Contracts (pieces of code that can be stored on a blockchain), which makes new and innovative financial applications possible.
Stablecoins vs traditional financial systems
As mentioned, Stablecoins are used worldwide, but they are especially popular in regions where economic uncertainty and (hyper) inflation rule. In countries such as Venezuela, Argentina and Turkey, Stablecoins offer a stable currency storage option for people who would otherwise have to deal with the fall in value of their own monetary currency. The ecosystem of Stablecoins has improved considerably in recent years and that has ensured that they have been put into use more, according to the growth of the transaction volume. In the meantime, the Stablecoin Ecosystem PayPal has passed and it almost matches Visa.
Last summer it was announced that PayPal will launch its own Stablecoin: PayPalusd (Pyusd). As the name suggests, this new digital currency is linked to the US dollar and the coin is fully supported by PayPal USD deposits. By using the Pyusd, PayPal customers can make peer-to-peer payments and make transactions between PayPal accounts and Digital Assets Portfolios. In addition, PayPal users can easily and quickly exchange the stablecoins to other digital assets supported by PayPal, such as Bitcoin and Ethereum.
Although the total market capitalization of stablecoins ~ 10% of the entire crypto ecosystem, Stablecoins dominate the on-chain transaction volume (70%). Stablecoins represent an important step forward in the world of Digital Assets. They offer stability, efficiency and accessibility, so that they enable both individuals and companies to seamlessly participate in the global economy. While the technology continues to develop and regulations (MICA) are coming in Europe - Stablecoins will probably play an even more prominent role in the financial systems of the future. Stablecoins can be a stepping stone to a further adoption in the use of Digital Assets.
