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Curious about stablecoins?
While they might not carry the excitement of Bitcoin or other cryptocurrencies, they still play an important role in the overall digital economy. From what they are to how they work, this article breaks down the basics.
Let’s get started.
Stablecoins can seem a bit weird to the beginner. Look, we get it. Why would you want to purchase something that only remains the same price over time?
To start understanding the why, we need to first answer the question, “What is a stablecoin?”
Think of stablecoins as a digital version of familiar money (like the U.S. dollar) that you can use online. Their main job is to maintain a stable price, usually aiming for a 1-to-1 value with a specific currency.
For example, USD Coin (USDC) is meant to always represent the value of a single U.S. dollar.
They connect the traditional world of finance with the digital world of cryptocurrency. But why do we even need this type of technology?
Bitcoin is awesome. Obviously, it’s something we’re very excited about here at Bitcoin Depot. After all, we operate the largest network of Bitcoin ATMs globally, with over 8,500 machines, making it easy to buy Bitcoin with cash.
Even so, there’s no denying that Bitcoin is constantly on a price rollercoaster. In less than a year, it’s gone from around $69,000 to almost $105,000* (data from coinmarketcap.com) and every price in between.
While this is great for investors and holders, it makes it tricky for payments or holding value in the short term. These price changes have created demand for a digital currency within the crypto ecosystem that holds a steady value.
That’s where stablecoins come into the picture.
Here’s what they offer users:
So that’s the short and sweet of what stablecoins have to offer, but that’s just part of the story. To better understand how they work, we need to understand the mechanics driving their stability.
So, how do stablecoins stay, well, stable? It all depends on the mechanism that drives that stability.
There are a few different flavors out there:
As you can see, the types of stablecoins range from simple to very complex. It’s worth noting that for most purposes, fiat-backed stablecoins win out — and for a good reason.
Algorithmic stablecoins, while certainly an interesting idea, come with some historical baggage. Just look at UST, the algorithmic stablecoin used in the Terra Luna ecosystem. Without getting too deep into the story, the short version is that it didn’t really work* (learn more at harvard.edu), causing a huge meltdown in the crypto world and the eventual downfall of founder Do Kwon.
But don’t let this scare you away.
Fiat-backed stablecoins are quite a revolutionary technology. There are several companies that offer them, with long track records and transparent reserves. While there is always inherent risk in the crypto world, stablecoins offer a safe harbor from a lot of those potential risks.
Stablecoins are a somewhat steady element of the crypto ecosystem. Even so, they offer quite a lot of potential.
Not only are they getting more traction with integrations into everyday payments, gaming, social media tipping, and more, but the industry is starting to see some clearer rules set by regulators. While they’re not likely to replace traditional money any time soon, they are becoming a fundamental building block of the digital economy.
There’s also the idea of Central Bank Digital Currencies (CBDCs), which are government-issued stablecoins, but they’re a bit different and probably require their own article.
In short, the future for stablecoins is only looking brighter. As of writing this article, stablecoin issuer Circle, of USDC fame, is planning for an initial public offering (IPO)* (as mentioned on cointelegraph.com), the first of its kind — a testament to how far the industry has come in a little over a decade.
Stablecoins are a way to take traditional real-world currencies into the digital space of crypto. They offer a variety of use cases within the crypto world, giving users more control and stability.
What does that mean for you?
Well, it means you can take your dollars and use them across a variety of blockchains. Whether that’s trading or lending out coins on a decentralized finance platform, the freedom and flexibility are only possible through stablecoins.
Ready to get started? We offer USD Coin (USDC) through our Buy Online service. Check it out here.
*The information provided above is for informational purposes only. The inclusion of any particular 3rd party site does not imply an endorsement, sponsorship, or partnership between Bitcoin Depot and the 3rd parties listed above. While Bitcoin Depot endeavors to ensure the accuracy and relevance of the information provided, we do not guarantee the reliability of any 3rd party’s information.