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Stablecoins in 2022 and 2023

The crypto market is known for its huge volatility. For example, if at the end of 2017 $20,000 for 1 BTC was considered a record high price, then after $68,000 for Bitcoin in November 2021, modern bitcoin holders are already dissatisfied with the price of $19,649. (The price is indicated at the time of publication of the article). Some traders enjoy this kind of volatility, because it is because of this that there is an opportunity for quick earnings, which is not found in traditional markets. But not everyone is ready for such risks: in an attempt to avoid volatility, stablecoins were invented.

Stablecoins are a type of crypto assets whose exchange rate is pegged to a fiat currency (usually the US dollar) or commodities. For a convinced crypto-anarchist, the idea of ​​stablecoins may seem like heresy, because the original idea of ​​cryptocurrencies was precisely the departure from the centralized monetary system, the departure from the monopoly on money making. But the needs of the crypto market created a demand for a stable trading tool. Stablecoins appeared back in 2014, three years before cryptohype 2017, when the general public learned about the crypto market. BitUSD and NuBits are usually referred to as the first stablecoins, but they have now given way to the more modern USDT, USDC and BUSD.

In 2022, due to sanctions, Russian banks were disconnected from SWIFT, Visa and Mastercard stopped serving Russian cards, and Russian banks introduced fees for storing currency. All this has made stablecoins a fairly popular tool for international transactions in Russia. Moreover, the legislation of the Russian Federation has recently become more loyal to cryptocurrencies, especially when it comes to foreign trade. Indeed, if you don’t want to deal with volatile assets on the crypto market, and it becomes extremely inconvenient to buy, sell and store fiat dollars, stablecoins look like an ideal solution here.

Types of stablecoins

Stablecoins can be divided into several categories depending on what they are backed by:

First, these are fiat stablecoins. As the name implies, they are backed by fiat currencies, and this is exactly what the “holy trinity” of dollar stablecoins, which are currently in the top 10 coinmarketcap — USDT, USDC, BUSD, belongs to. In 2022, the ruble stablecoin BRUB already exists, for which it is already possible to buy goods on the crypto marketplace.

Secondly, these are commodity stablecoins, which are backed by exchange commodities: most often these are precious metals or energy carriers. Examples are Tether Gold (XAUT) and Paxos Gold (PAXG).

Thirdly, these are stablecoins backed by other cryptocurrencies. You can argue for a long time whether this will allow you to achieve a stable exchange rate, but there are also examples of such stablecoins: DAI, EOSDT.

The fourth type of stablecoins are algorithmic stablecoins. An example is the infamous UST, which significantly undermined the credibility of the idea of ​​algorithmic stablecoins after its crash in May 2022.

And what about 2023?

Regulators in Western countries tend to be rather suspicious of stablecoins. For example, in August, the USDC Circle issuer was required to block the USDC wallet addresses of their Tornado Cash service: the US Department of the Treasury added Tornado Cash to the sanctions list. Tether has been fighting a class-action lawsuit for the whole of 2022, where the issuer is accused of misleading about the security of the stablecoin. In a word, the popularity of stablecoins is not to everyone’s liking, and detractors are constantly looking for a reason to find fault.

But, this may open the way for less popular stablecoins, which have not yet been reached by Western regulators or they are completely under the jurisdiction of other countries. In Russia, against the background of sanctions in 2023, there are good prospects for stablecoins, because transactions in foreign fiat currency are difficult, and the need for cross-border transfers is great.

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