When it comes to crypto, most people think immediately about Bitcoin, Ethereum, or any of their favorite altcoins and how wildly the prices can swing from day to day. However, not all cryptocurrencies behave with this kind of volatility. Some cryptocurrencies, called stablecoins, maintain a constant fixed price, making them unique digital assets with plenty of use cases. 

But how do stablecoins maintain their stability when other cryptocurrencies constantly fluctuate in value? And how is this innovation impacting the broader digital economy?

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What are stablecoins? 

Stablecoins are cryptocurrencies whose token value is pegged to a reserve asset, such as the US dollar. Because their price never wavers, stablecoins are ideal for day-to-day transactions and can be used like regular paper money. 

Some people use Bitcoin and other cryptocurrencies for payments, but their volatility makes them less unreliable for buyers and merchants. For example, if the price of Bitcoin was $50,000 and then dropped 10% the following day, you may wish you had spent it sooner. Conversely, if Bitcoin's price increased by the same amount, you may wish you'd held onto it.

Using stablecoins prevents such scenarios while providing the added benefits of cryptocurrencies over fiat, such as decentralized security, faster transactions, and lower transaction costs.

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Why are stablecoins ‘stable’ unlike other cryptocurrencies?

Stablecoins, like other cryptocurrencies, are minted on a blockchain, whose ledger protocols track its entire supply, ensuring that every single token is constantly accounted for at any given time.

However, unlike most cryptocurrencies, which fluctuate depending on the current supply and demand, stablecoins resist price fluctuation because a real-world asset already backs each of their tokens upon minting. In short, the supply of stablecoins always equals its market demand, as no new stablecoins are minted unless someone has already allocated value beforehand.

Stablecoins like USDT and USDC are fiat-backed, pegged to the US dollar's value and maintain vast reserves of cash and other cash equivalents to equal the value of all the tokens they issue to users. This ensures that every USDT or USDC token will always be exchangeable for US dollars on a fixed 1:1 ratio.

Meanwhile, some stablecoins are pegged to other types of assets, such as gold or oil. These commodity-backed stablecoins can then be traded in the market as if you were directly buying and selling the underlying assets, significantly increasing the convenience and speed of trades.

Stablecoins vs. other cryptocurrencies: Key differences

Stablecoins are blockchain-based assets similar to any other cryptocurrency, but they differ in the following areas:

Stablecoins

• Stablecoins can be trusted to maintain their value at all times.
• Stablecoins are backed by actual real-world value, such as cash or commodities. 
• Stablecoins have a practical and recognizable utility as a currency and store of value. 
• A centralized issuer mints stablecoins according to current demand.
• Stablecoins are issued across many blockchains, making moving funds to other networks easier.
• Stablecoin issuers maintain rigorous systems for checks and balances, such as regularly publishing transparency reports, complying with financial regulations and undergoing independent audits. 

Other Cryptocurrencies

• Other cryptocurrencies have fluctuating prices according to market supply and demand. 
• Other cryptocurrencies are backed only by their perceived utility or sometimes by short-lived hype, such as with meme coins.   
• Most cryptocurrencies have only speculative use cases or specialized utilities limited to their native platforms. 
• Other cryptocurrencies have their own respective supply mechanisms that oversee their issuance. Some cryptocurrencies are issued through ‘mining’, while others are released through vested reward systems. These are often complicated to manage and can create unpredictable market conditions. 
• Most cryptocurrencies can only be used within their native ecosystems and must be traded for other assets before they can be used in different networks.  
• Most other cryptocurrencies are only community-regulated and have no clear accountability measures. Some token networks operate anonymously, with no known founders or business addresses. 

What are stablecoins used for?

Stablecoins occupy a unique position between crypto and traditional fiat currency and provide innovative solutions to many difficulties in our financial systems.

1. Cross-border remittances: Sending money using stablecoins is as easy as sending an email. It’s also much cheaper and faster than traditional money remittance methods, which may charge a hefty processing fee and may also take days or weeks to clear. 
2. Micropayments: Transaction fees for sending stablecoins are negligible on many blockchains and third-party apps, making them ideal even for everyday micropurchases.
3. Store of value: Storing funds as stablecoins in a wallet can be more secure and practical than keeping your assets in a bank or a vault. Not only are blockchain ledgers immutable, but they also require zero maintenance fees. 
4. Cryptocurrency trading: Stablecoins are crucial in the cryptocurrency trade as they allow traders to buy and sell cryptocurrencies without converting their assets into fiat after every trade. Most of all, trading in crypto exchanges use stablecoins as a trading pair.

Access to CeFi and DeFi: Using stablecoins opens you up to decentralized and centralized finance, which offers a wide range of yield-earning opportunities, often much better than the rates offered by a savings account in a traditional bank. This is because blockchain platforms have significantly lower operational costs than physical banks, affording investors more returns on their money.

Which stablecoins should I use?

Currently, the dominant fiat-backed stablecoins are USDT, which is issued by Tether, and USDC, which is issued by Circle. There are also other alternatives, such as DAI, issued by MakerDAO, and more recently, PYUSD, from PayPal.

Plus, all of these stablecoins are supported in the Stables app!

How big is the stablecoin economy?

As of February 2024, the entire cryptocurrency market is valued at $2 trillion. Stablecoins make up approximately $139 billion or 7% of all cryptocurrencies. Much of this share comprises USDT and USDC alone, with a market cap of $97.8 billion and $28 billion, respectively.

In comparison, the entire stablecoin market is larger than the GDP of all but 58 of the sovereign countries in the world for 2022. Stablecoins are also considered to be the fastest-growing sector in the cryptocurrency space and are projected to overtake Visa in transaction volume by 2024. 

So to wrap it all up...

Stablecoins offer a distinct advantage over other cryptocurrencies in resisting volatility, making them more suitable for everyday transactions and as a store of value. While cryptocurrencies like Bitcoin may be more popular due to the potentially high rewards associated with their trade, stablecoins provide a reliable and predictable value, making them a practical alternative to traditional fiat currencies. 

Additionally, stablecoins can offer lower transaction fees and faster processing times than traditional banking systems, making them a compelling choice for individuals and businesses looking for efficient cross-border payments and remittances.

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Get started with Stables

Whether you're new to crypto or a seasoned investor, the Stables app provides one of the friendliest platforms for exploring stablecoins and their benefits.

Download the Stables app now and send money to over 130 countries. Enjoy faster, smoother and safer transactions, all without the costly fees. 

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