The booming market of cryptocurrency has acquired a lot of attention in the last year. With the biggest cryptocurrency Bitcoin being used for payments, balance sheets and announced as a legal tender for a country, different businesses around the world are looking to get into the action.
What are Stablecoins?
In short, stablecoin is a type of cryptocurrency that is tied to another asset class such as fiat currency, gold, etc. For example, the USD coin is backed by US dollars. The money is kept in a reserve that serves as collateral for the stablecoin. Meaning whenever stablecoin holders wish to cash out their tokens, an equal amount of assets are taken from the reserve.
Why were they created?
The reason why stablecoins have been created is associated with other types of cryptocurrencies. Bitcoin, Ether, and Cardano all offer several benefits and one of them is payments. Because of blockchain technology, cryptocurrency payments do not rely on the trust of an intermediary financial institution, thus many choose to send money with cryptocurrency as it reduces fees and time.
However, one major drawback is that these cryptocurrencies are very volatile, their price changes every second, making it difficult to use them. For example, people expect to know how much their money will be worth in a week from now to pay for expenses.
The unpredictability of these cryptocurrencies has given way to stablecoins like USDT, USDC, and Dai. Because fiat currencies are considered stable, they are used as reserves for stablecoins to ensure a stable and predictable environment in the cryptocurrency market.
What are they used for?
The most obvious use of stablecoins is payments. Businesses choose to make payments using stablecoins because in doing so they save more than 2% fees that would have been charged by intermediary financial institutions. Moreover, the speed of payments is much faster. Using stablecoins, companies can make international money transfers in minutes if not seconds, while banks would take up to 4 days to complete the transfer. The payments sector is poised to increase as companies, such as Facebook and Walmart, are looking to have their own stablecoin.
The main purpose of stablecoins is to ensure a stable environment and predictability. Because of the nature of stablecoins, they are an ideal place to store money. Just recently, due to the political and economical crisis in Venezuela, people opted to store their money in stablecoins to avoid their money losing its value as inflation reached 3000%.
The cryptocurrency market has seen a huge increase in people trading cryptocurrencies. Once you have gained your profit and are looking to cash out your reward, huge fees are sometimes applied because of crypto-fiat conversion. With fiat currency-backed stablecoins, cryptocurrency exchanges are able to cash out for their users, while saving them fees.
Soon PayPugs will be releasing its own stablecoin called WoofCoin. The stablecoin will serve the purpose of providing much cheaper, faster, and easier money transfers to clients. Keep an eye on PayPugs social media for further announcements.
The overall notion of stablecoins is that they provide different possibilities in a safe and stable environment. By offering faster, cheaper, and safer money transfers to creating smart contracts that allow for exchanging money between two parties when all conditions are met without an intermediaries help.