Why are stable coins important in the crypto market?

Cryptocurrencies are digital assets that are designed to work as a medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

The first cryptocurrency, Bitcoin, was created over 10 years ago. Bitcoin is a decentralized digital currency without a central bank or single administrator that can be sent from one user to another on the peer-to-peer bitcoin network without the need for intermediaries. 

There are currently over 6,000 Altcoins (cryptocurrencies that are not bitcoin) created after the seeming success of bitcoin. The existence of bitcoin does not affect altcoins, neither does altcoins existence affect bitcoin because each coin was created for specific purposes. One common trait among all cryptocurrency is their volatile nature. 

Stable Coins, on the other hand, are cryptocurrencies created to minimize the volatility inherent in cryptocurrency. Stable Coins are pegged to a tangible or stable asset like fiat money (U.S dollars) or precious metals (gold). No matter how the cryptocurrency market fluctuates, the valuation of the Stable Coin is relatively fixed to its underlying asset. 

For various reasons, Stable Coins are important in the crypto market and some of those reasons will be shared below:

Stability 

Just as the name implies, Stable Coins has provided stability to the cryptocurrency market. Even though bitcoin and other cryptocurrencies have opened the market to new opportunities, the volatile nature of cryptocurrency will continue to pose a threat to mainstream adoption.

Stable Coins are designed to be stable over an extended period of time. Enabling them to become the ideal safe-haven asset during the time of dramatic market fluctuations. 

Trading

Then, stable Coins are prime candidates for traders who want to reduce their crypto exposure without fully cashing out. They currently command the highest trading volume despite the fact that bitcoin has the largest market cap of all cryptocurrency. 

Although their prices are supposed to be fixed, Stable Coins have been seen to fluctuate during the time of massive volatility. The prices of Stable Coins appreciates when the crypto market dumps as traders will rather fall back to Stable Coins so as to reenter the market when it is favourable, rather than exit the market. 

Payments

For cryptocurrencies, this remains one of the promising aspects as several companies have begun accepting cryptocurrencies as a form of payment, especially bitcoin. However, the big question still remains if people are really comfortable making and receiving payments in cryptocurrency because of its volatile nature.

It is well known that cryptocurrency is a cheaper and more convenient way to send money, especially internationally. Stable Coins being immune to the volatility of cryptocurrency can drive the mass adoption that the crypto-verse really crave for because companies will easily accept stable coins as a means of payment in confidence that they get the exact amount they are being paid without the fear of it losing value. 

Financial Services

Finally, stable Coins can also be used for financial services such as remittance, settlement and escrow. It will be a good solution to the current high fees and delay that people suffer before sending money to their loved ones in a distant place. It is the perfect solution to cross border payment and remittance because it does not require any middleman or high fees thanks to its connection to the blockchain neither is it a volatile currency.

These are some of the reasons why stable coins are a vital component of today’s global crypto market. It is believed that cryptocurrency will soon experience mainstream adoption, mostly thanks to the brilliance of the stable coin.