The Crypto market is an all-time volatile virtual space. For its random volatility, users face hurdles for long-term investment or trading. Users now need its best features along with stable rates. The term stablecoins create a bridge between the crypto and fiat world as their value is connected or pegged to more stable reference assets like other currencies or digital commodities.
Stablecoins are developed to reduce or balance the volatility of crypto. It acts as the store of value and digital money to facilitate day-to-day trade or exchanges.
One of the first successful stablecoins, Tether was launched in 2014. The idea of stablecoins came into global traction. The popularity of stablecoins increased remarkably over the years.
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In the year 2022, in the first quarter of the year, stablecoins got a 15% increase in the market. But on the other side, Terra Luna fell painfully at the same time. Overall, the crash of Terra Luna caused the loss of billions in the market. Then it raised questions about the stability of stablecoins. The market became conscious of its upcoming years. It helped in cutting out the existing bad actors in the crypto market and it educates the investors gradually.
It raised the shortcomings of algorithmic stablecoins along with awareness among investors and traders about the fundamentals of stablecoins. Additionally, algorithmic stablecoins are not backed by any authority component. The coins maintain their value pegged to fiat through complex algorithms.
Though, the coins are not stable logically. Because their price is counted by the supply and demand of investors. However, all other collateralized stablecoins like fiat-collateralized (Tether- USDT), Commodity- collateralized (Tether Gold- XAUT), and crypto-collateralized (Makers DAO’s Dai- DAI) stablecoins are more stable and safe for crypto investment options. Because they are always backed with stable reference digital assets. They also focus on regular audits ensuring that their reserves are balanced with the stablecoin circulation.
Stablecoins managed to retain the faith of investors and it succeeded to survive the crash due to its strong fundamentals. The stablecoins are not only just investment instruments, it is more than that.
These pegged coins have the potential to bring revolution to the finance industry by facilitating cross-border payments. The traditional process takes a few days to conduct the wire transfer. They also charge a heavy transaction fee on international transactions. But in the case of stablecoins, it can make these payments quickly in an affordable manner for users by reducing the transaction time and fee significantly.
Due to its huge potential, several governments worldwide are trying to explore ways of integrating and regulating stablecoins. Meanwhile, Japan has recently launched a stablecoin bill for investor protection. Additionally, there are ongoing discussions in regulatory bodies to bring an effective regulatory framework for stablecoins in the EU. It is the same scenario in countries like the UK and the US etc.
Nowadays stablecoins are becoming a major part of the crypto ecosystem. They are rapidly increasing their existence in the market. Though, other competitors are entering the stablecoin space.
Recently Tether announced to launch of a new stablecoin named GBPT, which is pegged to the British pound. Alongside, Shytoshi Kusama announced that the Shiba Inu family is also planning to bring their stablecoin. The future of stablecoins is expected to be very promising. But it depends on the factors like regulatory policies and legal acceptance globally.