Top Use Cases and Benefits of Stablecoins
Faster, cheaper, transparent, borderless and programmable
Use Cases
Safe Haven Asset: Stablecoins have a value that is designed to be stable over any period. This feature makes stablecoins an ideal safe haven asset because, unlike cryptocurrencies like Bitcoin that can fluctuate dramatically in price every day, an individual using stablecoins to store value see no risk of loss, especially because they have full custody of their assets. The importance of both the price stability and self-custodial nature of stablecoins has recently been illustrated with the politico-economic crisis in Venezuela, where many citizens fleeing the country have stored their savings in Bitcoin to avoid confiscation of their fiat money.
Trading: Fiat onramps and offramps cost fees, making stablecoins a prime solution for exchanges and institutional traders who want the ability to reduce crypto exposure without fully cashing out. This use case is already in full effect; Tether, the largest stablecoin by market capitalization, was used in 40% of transactions on Binance and 80% of transactions on Huobi, which are two of the world’s biggest exchanges.
Payments: With Walmart unveiling a patent for its own stablecoin, payments are looking to be one of the primary use cases in coming years. Businesses benefit from accepting stablecoins as payment because, in doing so, they circumvent the 2–3% transaction fees that accompany the intermediary processing fees by financial institutions. Furthermore, Facebook’s Libra is poised to take on payments globally, taking advantage of the low transaction fees that blockchain technology enables.
Remittance: Cross-border payments and remittance are very real problems that overseas workers face when trying to send money home. Sending money internationally comes with high fees. For example, most migrant workers in Asia send home approximately $200 monthly, but they must pay $12 in international transfer fees–half a day’s wages gone for many. Blockchain solutions like Ripple’s xRapid (XRP) have been developed, demonstrating the viability of the blockchain in solving the remittance problem. However, stablecoins could lower fees even further because of their inherent price stability.
Payroll: In November 2018, Japanese shipping company Nippon Yusen Kaisha introduced plans to pay its workers using USD-pegged stablecoins, marking a first in using stablecoins to deliver payroll. This measure would make it easier for sea workers to manage their finances, as well as making sending and converting money back into their local currencies a more streamlined, low-fee process. Workers come from different nations and transact from one country to another frequently. By using stablecoins for payroll, these high international fees are dramatically reduced.
Settlement: When settlements are paid out, they are often unable to be delivered immediately because they are subject to normal bank hours. However, stablecoins operate 24/7 because they run on the blockchain, not a centralized financial institution with business hours. Therefore, parties receiving compensation from settlements can receive their money instantly through stablecoins.
Escrow: Stablecoins make the process of escrow completely automated through smart contracts that programmatically evaluate escrow conditions, without the need for institutional intermediation. Because smart contracts using stablecoins are on the blockchain, they are fully and publicly auditable. Furthermore, stablecoins provide price stability to escrow smart contracts, which, especially with large escrow holdings, can suffer significant losses from volatility.
Lending: Stablecoin lending is currently one of the most high-yield opportunities for debt investors, offering double-digit interest rates. This demand is fueled by massive institutional demand for stablecoin loans, which ties back to stablecoins’ use in trading. Compared to savings accounts offered by banks which max out at 2.15 APY, stablecoin returns on decentralized crypto lending platforms can be as high as 15%.
Alternative Banking: 18 million Americans don’t have access to a bank account. However, all that one needs to have a stablecoin “bank account” is internet access. Users have full custody of their funds with stablecoins and are not subject to bank failures or limited bank hours. There are also underbanked businesses that cannot open a company bank account for one reason or another that benefit from stablecoins as a method of alternative banking, allowing them to securely store their assets.
Powering Decentralized Applications: Decentralized applications with payment integration usually accept the native token of the platform that they run on, such as Ether. But because ether’s price fluctuates, the payments that decentralized application creators receive are subject to the variable market price. This could affect the development and sustainment of these decentralized applications if they do not receive enough funds from dropping payment prices. Stablecoins allow for a more robust decentralized application ecosystem because they can be used as a stable payment method for decentralized applications.
Benefits of Stablecoins
Faster Speed: Stablecoins make various financial processes faster. Escrow is streamlined by smart contracts utilizing stablecoins. Settlement and banking with stablecoins allow for transactions at all hours because the blockchain operates independently of a central institution with set hours.
Lower Fees: Credit card processing fees across major credit card companies such as Visa, MasterCard, and AmEx average about 2 percent per transaction. Because of this, many smaller businesses charge customers more for credit card purchases, prohibit the use of certain cards with higher fees, or even take cash only. However, these high costs of transaction can be circumvented through the use of stablecoins, providing value for both businesses and customers.
Borderless: The ability of cryptocurrencies to be an anonymous, borderless store of value has proven itself to be a real-world necessity for millions. In Venezuela, people cannot flee the country with their fiat money. They cannot send it internationally through their banks and they cannot physically carry their money with them, as it would be seized from them at the border. As such, Venezuelans have turned to Bitcoin. However, stablecoins provide a store of value much better than both Bitcoin and the Bolivar, as stablecoins are not subject to speculative markets or wild inflation.
Transparent: Transactions on the blockchain can be viewed from a blockchain explorer by anyone with internet access. Also, stablecoins can offer full transparency into the process by which they are backed through regular audits, which Stably does. As trust in Tether erodes, space is left for coins that offer more transparency to overtake it.
Programmable: Because stablecoins are fundamentally made up of code, features can be added to them, adapting to changing needs. For example, loyalty programs can be built into branded stablecoins such as Walmart’s upcoming stablecoin. By building loyalty programs on top of a company’s “branded” stablecoin, loyalty becomes directly integrated into the user experience. Users could easily check their balances of their stablecoins and their loyalty rewards on a single app, doing away with inconvenient rewards cards. Stablecoin integration with loyalty programs makes for convenient customer experience in a saturated loyalty marketplace where convenience is key.
About Stably
Stably is a venture-capital backed startup. Our vision for the future is to build an alternative digital bank powered by stablecoins — faster, cheaper, transparent and globally accessible.
What is USDS?
USDS is a stablecoin created by Stably and issued by Prime Trust, a Nevada-chartered trust company that is also the regulated administrator for USDS. Stablecoins are cryptocurrencies that are equivalent to national currencies — i.e. digital cash. Regulated, fiat-backed stablecoins are backed by physical reserves of cash and can be redeemed at a 1:1 ratio.
USDS virtually eliminates the crippling price volatility of traditional cryptocurrencies like Bitcoin and Ethereum, while still retaining many of their useful characteristics.
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Investors: Kory Hoang, Chief Executive Officer — kory@stably.io
