What Are Stablecoins and Why Are They Gaining Popularity?
We can use cryptocurrencies for many things. We can use them to shop online, play games on websites like online casino Japan and even use POS machines with crypto debit cards. However, volatility is at the forefront of the problems that prevent the further spread of digital currencies. The value of popular currencies such as BTC and ETH, which almost everyone knows, is very variable: you can become a millionaire or go bankrupt in just one hour. Stablecoins were developed to solve this problem, and in this article, we explain what they are.
The Volatility Problem
At the time of this article, “why did bitcoin price drop today” was one of the top searches on Google. Moreover, this situation has been going on for a long time: Bitcoin’s price can increase or decrease by 50% in just 24 hours. This is also true for other popular cryptocurrencies such as ETH, BCH and DOGE. For example, if you purchase 10 ETHs for 1,000 Yen, you can earn 2,000 Yen tomorrow, but you can also lose 1,500 Yen the next day. The sudden change in the prices of cryptocurrencies is called “volatility”, and the more dramatic the price change, the higher the volatility rate. This can turn into an advantage if you are using cryptocurrencies for investment purposes because sudden price increases can make you suddenly rich. But for the same reason, you can also suddenly go bankrupt. The volatility problem is one of the most important problems preventing the use of cryptocurrencies in daily life and replacing Fiat currencies. If the value of the Japanese Yen decreased by 50% in one day, for example, no one would think of using it in everyday life, would they? The same problem occurs with cryptocurrencies.
The Solution: Stablecoins
Stablecoins were developed to solve this problem. As the name suggests, these cryptocurrencies are “stable,” meaning their prices do not rise or fall at random. This is because stablecoins are tied to a real reserve asset. This asset can be USD, EUR, gold or oil – the important thing is that it is a real asset used in the real world.
It will be easier to understand if we give an example: Tether (USDT) is currently one of the most popular stablecoins on the market. If you look at the market prices, you will see that 1 USDT is always worth 1 USD, and this does not change at all. It won’t change a day, a week, a month or even a year from now: 1 USDT will always be worth 1 USD, as Tether’s value is tied to USD. If you have 1,000 USDT in hand, you will always get 1,000 USD when you exchange them.
Stablecoins represent confidence in a market where volatility is almost the rule. In order for cryptocurrencies to be used in everyday life, they must first of all appeal to the “ordinary user”. Whereas, right now, a large part of the crypto market consists of investors aiming to become millionaires in a few days. These investors use cryptos not as a currency but as a kind of stock and try to make a profit by buying and selling. But this was not the goal of cryptocurrencies: they were designed to revolutionize and replace the banking system.
Stablecoins can make this dream a reality: they cannot be used in trades that rely on volatility because their prices never change. Since they are tied to a real asset, users do not need to worry about going bankrupt or recalculate the actual value of their balances constantly. If an item costs 100 USD, you can buy it for 100 USDT: simple. These features also enable the market to grow in general by enabling more people to switch to cryptocurrencies. So it’s easy to understand why stable coins are becoming more and more popular: they offer reliability in a market that is very difficult to predict and enable cryptocurrencies to be used as an actual currency rather than an investment tool.
Most Popular Stablecoins
Some of the most popular and valuable stablecoins as of 2022 are:
- Tether (USDT) – Market Cap $78,142,396,120
- USD Coin (USDC) – Market Cap $49,645,987,634
- Binance USD (BUSD) – Market Cap $14,941,198,928
- Terra USD (UST) – Market Cap $11,247,759,889
- Dai (DAI) – Market Cap $9,599,300,516
Please note that market cap values are constantly changing, which will affect the ranking in the list. For example, a week from now, Dai could reach a market cap of $12 million and move up to number four on the list. When choosing a stablecoin, we recommend that you pay attention to how long it has been on the market and its total market cap size. This list has been prepared to give you an idea, not to give you advice. Also, from time to time, you may find that some stablecoins are worth a little more (or less) than 1 USD. For example, at the time of this article, 1 USDC was equivalent to 0.99 USD, and 1 DAI was equivalent to 1.15 USD. These simple drops and increases are due to changes in the market cap of that stablecoin and are not continuous: they eventually equate to 1 USD.