Despite the fact that stablecoins have been around long before cryptocurrency, they pose an interesting opportunity for the crypto sector.
Simply, stablecoins are currency that is backed by an asset such as gold. This is where they are particularly valuable in crypto because a large portion of the lack of trust in cryptocurrency can be attributed to its instability. Stablecoins solve this.
Why stablecoins?
Cryptocurrency is largely volatile. Currencies such as Bitcoin are not backed by any asset. Their value lies in the perception of others, in hype, and in investment. Stablecoins allow currencies to become stable and reliable, backed by solid and material collateral such as gold or silver.
This allows people to know that they are investing in something that will not suddenly fluctuate. Some currencies, such as those backed by golD, essentially tokenize the asset so that people can invest and have the digital token to back it up.
Stablecoins can also be advantageous in countries where fiat currency is not reliable. Not matter the currency or conversion, stablecoins are, well, stable. This provides a monetary option for those whose countries have been rampant with inflation and poor economic growth.
Does this mean regular cryptocurrencies are useless?
Cryptocurrencies are used for a variety of things, from monetary exchange to tokenized digital cats. And, to some degree, they are more trustworthy in their transparency – you know that you hold the currency, and there is little question as to its validity.
Stablecoins are not quite the same. There have been companies such as Tether who claimed that their cryptocurrency was backed by the US dollar, when in fact there were suspicions that Tether did not, in fact, possess enough dollars in reserve as collateral for its stablecoins.
Regular cryptocurrencies have potential, despite their volatility, and there are many companies, such as Facebook with its Libra coin, that are actively supporting crypto.
However, stablecoins pose an interesting opportunity to expand the power of digital currency into the real world. For those who are opposed to cryptocurrency because of its lack of reliability, stablecoins are far more dependable.
Are stablecoins even true cryptocurrencies?
Does backing a cryptocurrency with an asset prevent it from being truly decentralized?
Bitcoin was essentially created to subvert regular fiat currencies. One of blockchain’s integral benefits is its decentralized nature. If a cryptocurrency is tied in with assets, especially the U.S. dollar, is it then part of a centralized monetary system? This is a question that only consumers can answer, as they decide whether they want to place their trust in a more centralized cryptocurrency system.
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