Stablecoins have become a key part of the cryptocurrency industry. are cryptocurrencies that are pegged to the dollar. They do not fluctuate in value like crypto such as Bitcoin and Ethereum do. They are typically backed by dollar balances in bank accounts. As these deposits grow, the companies backing the stablecoins issue more coins. Stablecoins Some examples of stablecoins are , , and . Tether (USDT) USD Coin (USDC) DAI Stablecoins have become an essential part of crypto investors’ portfolios. They have created a safe haven for investors to hold their value in dollars. Instead of holding their dollars in bank accounts which can take days to transfer to exchanges, investors can hold their dollars in stablecoins which they have instant access to. The Growth of Stablecoins Stablecoins have seen incredible growth over the past year. This is a At the beginning of 2021, the total stablecoin supply was $30 billion. Today, this has grown past $175 billion. 6x increase in stablecoin supply in a little over a year. This growth is impressive for a market that was already billions in size. An increasing stablecoin supply signals that new capital is flowing into cryptocurrency. Users are not redeeming their stablecoins for cash. They are keeping their money in stablecoins instead. These coins are seen as a better alternative to traditional banking. Why do users prefer stablecoins over traditional bank accounts? Stablecoins: A Better Dollar System There are a few unique benefits to stablecoins that give them an advantage over the traditional dollar system we have today. Payments Stablecoins are the preferred cryptocurrency for payments today. Cryptocurrencies such as Bitcoin and Ethereum aren’t popular for payments because their prices are volatile. Users do not want to pay in a currency that can rise or drop quickly overnight. Paying with these cryptos also creates a , which means you have to pay taxes on any capital gains from selling the asset. It’s a pain to track how much you owe the IRS after each purchase. taxable event Stablecoins are great for payments because they are pegged to the dollar. Stablecoin prices do not fluctuate in value which means they do not create a taxable event at the time of purchase. Merchants also prefer stablecoins because there is and . no chargeback risk reduced processing fees Stablecoins enable fast settlement, so merchants don’t have to worry about their customers reversing a charge after a purchase. These coins also bypass card processing networks such as Visa and Mastercard. These networks typically take 1.5% to 3.5% of each transaction. The only fee for stablecoins is the blockchain transaction fee by the user. Stablecoins benefit both the merchant and the consumer. Merchants can pass on these savings to customers by reducing prices. Easy Access to Dollars Stablecoins allow dollars to move through the financial system easily. In 2020, if you received a stimulus check, you may have noticed that it to receive the money. People needed this money quickly as many people lost their jobs because of the pandemic. These delayed payments highlighted the flaws of our current banking system. It’s not easy to distribute money to millions of bank accounts. took weeks or even months Using stablecoins, This would provide immediate relief for citizens who need the money fast. the government could send stimulus checks within hours of the bill being approved by Congress. Stablecoins are simply a better way to transfer dollars than our current system. Remittances Stablecoins will disrupt the remittance market as well. The remittance market is a multi-billion-dollar industry. In 2020, the global remittance market was valued at ~$700 billion and is expected to grow to $1.2 trillion by 2030. Remittance companies generate large profits by facilitating these transactions. According to Worldbank, the average cost of sending $200 overseas is 6.5%. Stablecoins can be used for remittances instead of having companies as middlemen to process transactions. The only cost would be the transaction fee. who want to send money overseas. This would save billions of dollars a year for consumers Stablecoins Will Continue to Grow These are the reasons why stablecoins have grown so fast over the past year. It’s a better system than what we have today. I believe we will continue to see rapid growth of the stablecoin market. There are too many benefits to not use this technology. This is only the beginning for stablecoins. We will see innovation in stablecoins as they become embedded in our financial system. It’s only a matter of time before there are more stablecoins than cash in the world. Disclaimer: All opinions expressed by Josh Lelito are solely Josh’s opinions and do not reflect the opinions of his employer or any affiliates. You should not treat any opinion expressed by Josh as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This article is for informational purposes only. Also Published Here