Stablecoins have become a key part of the cryptocurrency industry. Stablecoins 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.

Some examples of stablecoins are Tether (USDT), USD Coin (USDC), and 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. At the beginning of 2021, the total stablecoin supply was $30 billion. Today, this has grown past $175 billion. This is a 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 taxable event, 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.

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 no chargeback risk and 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. Merchants can pass on these savings to customers by reducing prices. Stablecoins benefit both the merchant and the consumer.

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 took weeks or even months 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.

Using stablecoins, the government could send stimulus checks within hours of the bill being approved by Congress. This would provide immediate relief for citizens who need the money fast.

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. This would save billions of dollars a year for consumers who want to send money overseas.

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.

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