Why Does the Crypto Economy Need Stablecoins?
As anyone who has ever traded crypto currencies can testify, the exchange remains one of the most volatile marketplaces in the world, which has led to some of the biggest criticisms of the crypto market.
This is why stablecoins offer such value, as they can be leveraged to reduce the underlying volatility of the crypto economy, broaden its appeal among more risk-averse investors and help the market to realise its immense potential. But what exactly are stablecoins, and why are they becoming increasingly important in the current climate?
What are Stablecoins?
In simple terms, stablecoins are digital currencies that that offer clearly-defined price stability attributes to investors.
In this respect, a stablecoin is more likely to be considered as a unit of account and secure store of wealth, as its value is pegged to a less volatile asset class such as gold or a major fiat currency like the U.S. Dollar (USD).
While assets of this type do experience price shifts, they’re far more predictable than cryptocurrencies and tend to fluctuate with less frequency.
Given that cryptocurrencies can fluctuate by up to 20% during a typical trading session (last year also saw the price of Bitcoin increase from $900 to a staggering $20,000 in just 12 months), stablecoins clearly offer a more effective store of value regardless of the prevailing market conditions.
Why are Stablecoins Central to the Immediate Future of the Crypto Economy?
As we’ve already said, the ability of stablecoins to serve as a more effective store of value and minimise volatility has already helped to broaden the appeal of the crypto economy among mainstream investors.
Stablecoins also partially compensate for the existing lack of regulatory oversight in the crypto economy, which can encourage market manipulation and trigger more sustained levels of volatility. To understand this, you need only look at how the application of progressive measures has helped to regulate the world’s largest financial market (the foreign exchange), which sees an estimated $5.3 trillion traded globally every single day.
More specifically, stringent regulation of this market has helped to safeguard investors from rogue brokerages, which can contribute to wild price movements and make currencies particularly difficult to value accurately at any given time.
Make no mistake; stablecoins can help to minimise similar, short-term volatility in the crypto economy and increase the levels of institutional capital that are invested in this market, while the foundations for an effective regulatory framework are laid across the globe.
The Last Word
The nature of cryptocurrency lends itself to volatility and seismic price shifts. As a result of this, we see stablecoins as an increasingly pivotal part of the current crypto economy, particularly in terms of their ability to provide more consistent and longer-term value to investors and encourage greater levels of participation within the marketplace.
It is for this exact reason we created our stable coin “FiatPeg”, which is being pegged to asset classes such as fiat currencies and precious metal, the crypto economy is continuing to diversify while empowering investors to hedge against market volatility, we believe our stable coin “FiatPeg” is the news both investors and exchanges have been waiting for.