An Overview of Stablecoins and their Use-Cases

Published in

Definity Network

4 min readSep 29, 2021

Stablecoins was first introduced by Tether in 2014, and since then their implications in the blockchain industry are rising. Today, many new stablecoins are now a part of the industry including the Tether (USDT), Binance USD (BUSD), True USD., and the global market supply of stablecoin exceeds $100 billion. Stablecoin represents a form of cryptocurrency that is stable and less prone to market price volatility of cryptocurrencies.

So, what are stablecoins, and how are they useful to us? Let us find out.

What are stablecoins?

Stablecoins, by the very name, suggests stability. Stablecoin is a type of crypto coin backed by an underlying asset like fiat currency (USD/Euro), cryptocurrency, or commodities like gold or other precious metals. Since stablecoins are pegged or tied to an asset like a fiat currency or gold, it provides price stability and a steady valuation, unlike cryptocurrencies. Moreover, the decentralised nature of stablecoins which are not controlled by any central authority, allows users to trade them easily in the DeFi market. Stablecoins can be of different types like:

Fiat-collateralized stablecoin like True USD or Tether USDT, where the stablecoin is pegged to a fiat currency like USD or Yen.
Cryptocurrency-collateralized stablecoin like DAI where it is backed by a cryptocurrency.
Commodity-backed stablecoin like Paxos Gold or Tether Gold, where the stablecoin is tied to a commodity like gold.
Non-collateralized stablecoins where the stablecoin is not pegged to any underlying asset but maintains stability in the supply volume through an algorithm and maintains the token price. An example of an algorithmic stablecoin is Ampleforth or AMPL.

What are the uses of stablecoins?

Let’s take a look at stablecoins advantages and their uses.

1. Stability

Centralised currencies like fiat money are considered to be the safest asset as their values are controlled by the government and are issued by the central bank. Moreover, fiat currencies are pegged to other underlying assets like Forex reserves or commodities like gold. They give stability to the currencies. Cryptocurrencies on the other hand are not controlled by any centralised authority, are decentralised, and are private in nature. They are considered highly volatile assets and, in some countries, it is illegal to trade cryptocurrencies.

Due to the volatility of the market, the price of cryptocurrencies swings every now and then. So, the value of a Bitcoin that you buy today may give you one-third value after two months. Stablecoins is the perfect alternative for cryptocurrencies as they are pegged to an asset. So, stablecoins give the benefits of decentralisation as well as stability and facilitate mainstream adoption of digital assets.

2. Borderless Transactions

Stablecoins facilitate cross-border transactions. eMoney like stablecoins are backed by centralised currencies like fiat money. They can be defined as digital fiat currencies that are stable and whose prices do not fluctuate. So, they can be easily used for cross-border payments. Stablecoins are a means of frictionless payments for cross-border transactions and are available on public blockchain networks. These networks are open to all and provide instant settlement of payments. Stablecoins are liquid and can be swapped in exchanges. Transactions can be instantaneous through easy mobile applications. Stablecoins can be used to finance banked as well as underbanked economies.

3. Reduces Fees

Companies charge almost 2% processing fees for credit cards, VISA, or Mastercard purchases. This can be a costly affair for small-time business owners. Built on blockchain networks, stablecoins provide the best solution for both individual and small-time investors by charging low transaction fees. Experts believe that they are the best solution for everyday purchases and daily use.

4. Transparency

Like cryptocurrencies, stablecoins guarantee trust and transparency in the blockchain network. Due to lack of regulation, anyone with internet access can view their transaction history. Stablecoins uses the goodness of cryptocurrencies. They are not regulated and do not disclose the identity of users. Stablecoins do not reveal or verify the identities of transacting parties.

5. Transaction Speed

Unlike traditional banking, stablecoins can be issued 24 hours a day and 7 days a week anywhere in the world. Furthermore, since they operate on the blockchain network, stablecoins are regulated by smart contracts that allow seamless transactions without the interference of any centralised authority. Smart contracts dictate the terms of transactions and are very useful for lending, insurance, or payments without any human interaction.

Final Words

Stablecoins facilitate the advantages of cryptocurrencies as well as fiat money. Many DeFi projects are harnessing the sustainability of stablecoins like the DeFinity project. There has been an exponential growth in stablecoins, and many e-commerce industries and blockchain projects are introducing stablecoins as it reduces the cost of transactions. There is no doubt that soon stablecoins will emerge as a global payment option for industries. Experts believe that stablecoins are definitely an easy payment solution for e-commerce industries, especially in unbanked areas where people do not have bank accounts, proof of address, identity, or banking history.