This article is a part of our DeFi series that aims to provide free knowledge about DeFi to individuals and businesses alike. Read to explore what stablecoins are, the different types and how they work, associated benefits and risks, and how businesses are adopting this DeFi use case.
The stablecoin market supply currently stands at about $160 billion with more users pouring in to navigate the volatility of the crypto market. This trend reflects a growing recognition of the importance of mitigating risk and preserving value in the cryptocurrency ecosystem, driving further innovation and adoption in the stablecoin market.
In this article, we explore the top use cases for stablecoins around the globe.
Saving
One of the most relevant use cases for stablecoins is as a safe store of value. In 2022, inflation rates around the world reached all-time highs. Citizens in Argentina (88%), Venezuela (156%), and Turkey (88.5%) witnessed some of the hardest hits. Stablecoins, pegged to either USD or gold, act as a hedge against this hyperinflation.
People in the most heavily affected areas are often also restricted from exchanging their savings into foreign currencies through the country’s traditional financial system during periods of hyperinflation. stablecoins are a low-risk, easily accessible alternative that, like all cryptocurrencies, exist independently from any nation’s government or central bank — making them an ideal solution for people looking to protect their earnings.
This shift towards stablecoins in Latin America and countries that have witnessed hyperinflation has been confirmed in multiple reports in 2022; Mastercard showed that more than a third of Latin Americans said they have made an everyday purchase with a stablecoin, compared to just 11% of those responding worldwide.
Download our report on savings in hyperinflationary countries to learn more.
Transfers and Payments
Stablecoins can be used to make cross-border payments, bypassing the traditional banking system. As stablecoins are sent over the blockchain, they are not subject to fluctuations in foreign exchange rates or the lengthy wait times faced when sending money through traditional methods.
Beyond this, as most stablecoins function as a digital representation of fiat, they are ideal for making everyday payments and purchases. Multiple online marketplaces, such as Kripton Market, are now accepting more and more stablecoins as a form of payment.
Learn how businesses are integrating crypto and stablecoins into their payments and remittance solutions in our data-driven report.
Trading
Stablecoins are commonly used as a base pair on decentralized cryptocurrency exchanges, meaning that they are used as a reference currency to price other cryptocurrencies. For example, a trader could use a stablecoin like USDT or USDC to buy Bitcoin, Ethereum, or other cryptocurrencies. Additionally, they provide a highly liquid pairing for purchasing and trading other cryptocurrencies which allows for faster and more efficient trading compared to traditional fiat currencies, which can take days to settle.
Stablecoins provide the foundation for the DeFi economy — working hand-in-hand with the blockchain network they are built upon. As the next phase of DeFi services evolves, stablecoins will play an integral role in providing a stable ground for the global DeFi ecosystem to thrive.
Examples of Stablecoins
Tether (USDT): The most well-known and widely used stablecoin. USDT currently ranks as the third largest cryptocurrency by market cap behind BTC and ETH. Originally launched in 2014, it has maintained a 1:1 peg with USD ever since. It is a fiat/commodity-backed stablecoin (mostly USD and gold). The company behind issuing USDT has seen its share of controversy in the past, with claims they did not have the equivalent in collateral to back up the circulating supply of USDT. However, recent audits and actions to improve transparency have helped to repair Tether’s reputation.
USDC: The second biggest stablecoin, USDC gained popularity as a more transparent alternative to USDT. It is backed entirely by fiat currency and maintains a 1:1 peg with USD. The company behind USDC utilizes smart contracts to automate (and somewhat decentralize) the process of issuing the stablecoin.
DOC: A Bitcoin-collateralized stablecoin that maintains a 1:1 USD peg. DOC is the stablecoin issued by Money on Chain. It uses a system of smart contracts to issue DOC based on the amount of BTC deposited. All DOC tokens are over-collateralized by Bitcoin in order to protect the peg of this stablecoin.
USDRIF: RIF US dollar (USDRIF) is a USD-pegged stablecoin, backed by the RIF token and it’s native to the Rootstock ecosystem. Its purpose is to support use cases around paying, sending, and saving money in a simple, stable and secure way, allowing users to hedge against inflation, protect their wealth, and prosper.
Looking forward
In this era of rapid technological advancement and financial transformation, stablecoins stand as a testament to the power of innovation and decentralization. As we continue to explore the vast potential of this burgeoning market, we look forward to witnessing the continued evolution and impact of stablecoins on the global financial landscape.
Read our article on DeFi applications to learn more about the crypto landscape, and follow @RIFtechnology on X for more educational content.