Stablecoins Are Changing How We Handle Money, Here’s How

Stablecoins have become increasingly popular in recent years, and for good reason. They offer a stable value, making them an ideal currency for conducting transactions and storing funds.

In this blog post, we’ll explore the most common use cases for these stable assets, from on-ramps/off-ramps to gaming, and see how they are revolutionizing the way we handle our money.

1. On-ramps/Off-ramps

On-ramps and off-ramps are the gateways that allow you to enter and exit the crypto ecosystem. Stablecoins bridge the gap between traditional finance and decentralized finance by providing a stable currency that can be easily converted to and from fiat currency. DeFi platforms and protocols have confidence in the stability of these stable assets, making them widely supported in the crypto ecosystem.

2. Payments

 

Stablecoins are ideal for facilitating speedy, peer-to-peer transactions and payments. They can even be used for automated microtransactions through smart contracts, reducing the need for manual intervention. These stable assets are highly liquid and can be easily swapped for fiat currency through various exchange platforms. Some consumers even use a crypto debit card to purchase real-world goods with a stablecoin.

3. Stablecoins in Remittances

Stablecoins can also be used for remittances and cross-border payments, eliminating the need for third-party institutions and reducing the costs associated with exchange rates and transfer fees. Verification processes are done on-chain, reducing transaction times from days to minutes. Compared to other digital currencies, a stablecoin reduces the risk of price volatility in remittances.

4. Savings

Stablecoins offer an alternative to high-yield savings accounts, providing a stable value without vesting or lock-in periods. Users can easily transfer money in and out of wallets, saving and spending when they need it. For non-traders, a stablecoin can be used as an alternative to traditional savings accounts.

The average interest rate for a savings account is about 1.28%, while stablecoins can offer as much as 8% APY to offset the inherent risks of stablecoins de-pegging and losing value without insurance or government protection.

5. Lending and Staking

Lending and staking provide liquidity to exchanges, institutions, and sometimes individuals. Stablecoins like USDC, USDT, and DAI have over $24.5 billion locked in as of February 2023. Unlike Ethereum, these stablecoins do not use the proof-of-stake consensus mechanism, making staking more like a money market deposit than anything else.

While these mechanisms yield larger APYs than savings accounts, the drawbacks lie in the lockup or “vesting” periods, where you can’t touch or transfer your crypto for specified periods. In effect, you trade off liquidity for the benefit of higher rewards.

The Future of Stablecoins

The popularity of stablecoins is set to continue as more use cases emerge. As of March 31, 2023, the total trading volume for these assets worldwide was over $22 billion USD. This is a substantial increase from the $364 million USD in trading volume of stablecoins in late 2018.

The growing acceptance of stablecoins by centralized and decentralized financial systems is contributing to their continued growth. Stablecoins offer many advantages over traditional cryptocurrencies, including low volatility, easy convertibility to fiat currency, and faster transaction speeds.

The continued growth of stablecoins has led to the emergence of new stablecoin technologies, including their algorithmic counterparts and CBDCs. An algorithmic stablecoin is not backed by any asset and relies on algorithms to stabilize its value. CBDCs, on the other hand, are digital versions of fiat currencies issued by central banks.