Stablecoins: What is the use? What are they?

“Why We Need Stablecoins

If you’re new to this space, a stablecoin is a digital asset that always holds its value, typically against the U.S. dollar. The top stablecoins currently include USD coin (USDC), DAI (DAI), tether (USDT), binance USD (BUSD), and paxos standard (PAX).

Today, these stablecoins are holding over $9 billion in value.

If stablecoins are designed to be stable -- to always be worth $1.00 apiece -- you can’t make money with them. (In fact, you’ll slowly lose money to inflation, just like holding cash.) But they are extremely useful, because they allow you to hold value without switching back and forth between regular money and digital money.

Let’s say the price of bitcoin reaches $50,000. “Woo!” you think to yourself. “This market is getting pretty hot.” You sell a bitcoin to lock in the profit, but you don’t want to cash out to U.S. dollars. So you hold your $50,000 in a stablecoin, and when bitcoin goes down in price (let's say to $35,000), you buy it back again.

This is exactly how traders are using stablecoins today. And the demand for these stablecoins is insane, because these markets are still so young and inefficient that the traders have figured out a hundred ways to make money in them. But they all require stablecoins.

This is why DeFi markets are able to pay out such high interest rates: your bank can offer you less than 1% interest on a savings account, but DeFi markets will pay you 3.5% to use your money -- and sometimes much more.” - John Hargrave


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