When merchants introduced digital currencies like the Bitcoin as a payment method they were met with a big roadblock, price volatility. This is when a new solution appeared before them in the form of stable coins. Rather than depending on whims of traders and their speculations, these coins are also based on blockchain technology but are pegged to stable real currencies. So, users can buy one stable coin in exchange of a dollar and can redeem it for the exact price, thereby doing away with notorious price fluctuations.
When the crypto crash took place in 2018, the stable coins made their debut. This crash saw the leading crypto coins like Ether and Bitcoin losing almost 90% of their market cap in a year’s time. Many big retailers who held these crypto assets sough to exchange these for the stable coins to minimize risks. When the price ups and downs settled finally the same traders redeemed their stable coins with digital currencies and fiat currencies.
Stable coins are popular as they enable receipt and use of investment funds without having to go through the hassles of bank transfers, third-party fees, and lengthy disclosure statements. The transfers can be immediate and smooth, yet have all the safeguards of the current systems. In this way stable coins are giving entrepreneurs a much more useful method of receiving, managing and investing money.
Because of their market potential stable coins have continued to gain popularity; at the moment stable coins backed by the USD are the most dominant. For example, Tether’s USDT, Paxos’s Standard Token and TUSD, and Circle’s USDC, are the leading cryptos according to market cap. They have become leaders because of quick adoption by consumers and businessmen. However, there are some firms that are trying to come up with some more new stable coins with better features. Plasma Pay, for instance, is a European start-up that developing a payment platform based on the blockchain and revolving around Plasma cryptocurrency. This is a new stable coin backed by 5 key fiat currencies like the Euro, USD, Japanese yen, Chinese Yuan and GBP. The benefit of this crypto over the USD-backed stable coin is that it eliminates volatility risks of fiat currency and cryptocurrency. So, even if the USD was to fall drastically the stable coin would not drop as much as it has only marginal backing from USD.
Stable coins are expected to support businesses because of their stability and flexibility. Star-up managers can now pursue capital acquisition successfully. Entrepreneurs will be able to manage their funds faster without international barriers. They will have far more confidence knowing that their investments will not lose value just because a fiat currency falls. Since stable coins are hedged against a host of international currencies, the inflation pressure is also reduced. So, investments will never lose value because of inflation changes. Lenders and investors will use these tools to transfer money into start-ups and businessmen can move funds to their investors without going through hassles of legacy banking systems. As a result, capital acquisition will also happen worldwide and not simply locally. There is far better potential for growth and stable coins can indeed link you with your investors in a genuine P2P relationship.