While the popularity and adoption of cryptocurrencies, especially Bitcoin (BTC) and Ethereum (ETH), are increasing, volatility remains a problem. This is where stablecoins, such as True USD, Tether, and Binance USD, etc., are set to play a significant role. Stablecoins, as per experts, keep a stable value relative to a specified asset. It can also be described as a digital token that is designed to minimize price volatility. Stablecoins can be used as a unit of exchange, a unit of account, or store value – this is in comparison to high volatile cryptocurrencies like bitcoin. According to Benzinga, investors can use stablecoins to keep their assets in the crypto space safe. It should be noted that switching from crypto to fiat currency can be hectic and expensive, but with stablecoins investors can enjoy the best of both worlds.
PresentlyBack, stablecoins are used for trading, investing, payments, purchases, and remittances. They have proved useful for international money transfers and retail payments. Moreover, it has boosted competition and caught attention in financial markets. Stablecoins fall under three main categories:
i. Fiat or asset-backed
ii. Crypto-collateralized
iii. Algorithmically stabilized stablecoins
The stablecoins market recorded highs during the COVID-19 pandemic in 2020 when bitcoin suffered a significant fall. As a result, the US Office of Comptroller of Currency, in January 2021, allowed its national banks and federal savings associations to use stablecoins for bank-permissible functions.
Furthermore, stablecoins are not bounded by borders. Therefore, the transaction process is faster and smoother. There is no third party involved, which means that the user doesn’t have to pay extra charges or fees. On the positive side, transactions with stablecoins are very much transparent. Transactions are recorded on a public ledger; its monitoring. Unlike cryptocurrencies, some stablecoins are centralized. This is because most stablecoins have been created by centralized institutions.
