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Stablecoins — What are they actually for?

As stablecoins continue to gain momentum in terms of both market cap and investor interest, it’s important to know what this next generation of cryptocurrencies is hoping to accomplish.

FinTech Weekly
Oct 17, 2018 · 6 min read

Safe haven for investors

During the bitcoin boom of 2017, the most notable group of people in the cryptocurrency market was retail investors. These individuals bought bitcoin as an investment vehicle and rode the 2017 market to immense profits. Even as institutional investors and high net worth individuals are beginning to take on a larger role in the market, retail investors still play a significant role.

Moving money around the cryptocurrency ecosystem

Exchanges aren’t the only platforms where cryptocurrencies are necessary or useful, and as the industry matures there will likely be a growing need to use cryptocurrencies for purposes beyond just exchange and investment, such as unlocking the services provided by various decentralized applications, or dApps.

Everyday exchange

The dream among crypto-enthusiasts is for cryptocurrency to one day be used for everyday purchases of things like coffee, groceries, or new clothes. That dream is still far off, but it’s worth noting that stablecoins are an important step forward. In order for the economy to function efficiently, it needs a stable unit of account for exchanging goods and services. People need to be able to count on most goods and services costing more or less the same today as they did yesterday.

Stability for everyone

Finally, a stablecoin use case that isn’t talked about as often, but is nonetheless significant, is expanding access to reliable national currencies. Most of us living in developed nations are used to having a national currency that we can trust to stay relatively stable and provide a safe store of value for our wealth. Looking outside our national currency is a luxury, not an immediate need.

Conclusion

This isn’t an exhaustive list. New stablecoin projects are popping up at an extraordinary rate. None of the existing models are perfect: fiat-backed tokens are largely centralized, crypto-backed tokens are still exposed to market volatility, and algo-backed tokens often depend on neverending platform growth. As new models are introduced and new projects develop, people may come up with use cases we haven’t even thought of yet. I hope they do.

Fintech Weekly Magazine

Insights into where finance meets technology - from…

FinTech Weekly

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FinTech Weekly is a news service for the FS industry. Our newsletter comes out weekly, wrapping up the most important insights and strategies from the past week

Fintech Weekly Magazine

Insights into where finance meets technology - from experts, for experts.

FinTech Weekly

Written by

FinTech Weekly is a news service for the FS industry. Our newsletter comes out weekly, wrapping up the most important insights and strategies from the past week

Fintech Weekly Magazine

Insights into where finance meets technology - from experts, for experts.

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