The cryptocurrency market, which continues to tackle uncertainties around it, has seen the usage of stablecoins multiply in last couple of years. According to data by European Central Bank, stablecoins’ market capitalisation increased from €23 billion to around €150 billion in the Q1, CY2021. In September, 2021, around 75% of trading on cryptocurrency platforms involved stablecoins. Market behaviour suggests that stablecoins are being used to trade cryptocurrency assets. “Stablecoins act as intermediary when cryptocurrency investors want to exit a market position and re-enter it later. Stablecoins can help with trading between different cryptocurrency exchanges, and can also help investors with their financial stability when cryptocurrency markets are bearish in nature,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange, told FE Digital Currency.
Reportedly, stablecoins such as Tether, USD Coin and Binance USD account for close to 90% of the total stablecoin market. According to experts, stablecoins can be used as a currency because of its collateral value being associated with the United States Dollar (USD). Information from Federal Reserve, a government body, mentioned that a two-tiered banking system, where banks are supervised under state and federal levels, can support both stablecoin issuance and maintain traditional forms of credit creation. “As stablecoins are backed by financial services authorities, it can be a frontrunner in the cryptocurrency space. In the longer-term, I believe interoperability between stablecoins and central bank digital currencies (CBDCs) will take place,” Anndy Lian, chief digital advisor, Mongolian Productivity, a governmental organisation, said.
It is believed that stablecoins can help to bridge the gap between cryptocurrencies and fiat currencies, due to their relatively low price volatility. “Stablecoins can be used to ensure monetary balance as companies can pay salaries and conduct transactions between different geographies. As stablecoins can be tracked, governments can implement regulations to excercise control over it without their complete ban,” Aliasgar Merchant, lead developer of relations, Akash Network, a decentralised cloud platform, stated.