Real-world Applications of Stablecoins: Transforming the Global Financial Market
Cryptocurrencies have surged in popularity because of their benefits, such as instant transactions at low costs, trustless ownership and exchange, pseudo-anonymity, transparency, and elimination of traditional banking system problems. Despite being a revolutionary solution, cryptocurrencies are struggling for mainstream adoption — the major reason being the volatile nature of cryptocurrencies that leads to rapid and unpredictable fluctuation in their prices. It is due to this volatility that cryptocurrencies are not regarded as a standard of deferred payment. Given the nascent stage of the technology, some opine that cryptocurrencies have a long way to go before they can be used as a store-of-value or medium-of-exchange.
This is when stablecoins come into play. Stablecoins are pegged by other stable assets such as USD or precious metals, and hold their value fixed at a 1:1 ratio, thus overcoming crypto volatility. The stable nature of stablecoins promotes their use as a means of payment and store of value, which explains that stablecoins potentially enable the development of a global payments system that is cheaper, faster and more inclusive than the existing system.
Stablecoins are gaining rapid popularity, subsequently resulting in elevated demand for the best stablecoin development services. Although stablecoins are in their infancy, they have various potential real-world uses-cases poised to transform the financial market.
Instant, Cheaper Cross-border Transactions
The existing system requires people to rely on banks and financial institutions for cross-border payments. This is a slow and costly process — it takes three to five days to clear a transaction, and the fees average 4% to 4.5% of volume.
Since crypto transactions can be executed without any third-party intervention, they can be a solution for cross-border payments. However, cryptocurrencies like Bitcoin can experience a significant drop in their prices in just one day, thereby making them a risky option for global remittance or cross-border payments.
Stablecoins, on the contrary, provide a better alternative. Migrant workers or businesses across the globe can utilize crypto wallets to transfer stablecoins to any location in the world instantly, with low fees and without any price volatility. Given the trillion-dollar global remittance market, this is a huge opportunity for stablecoins.
Protection from Local Currency Crash
Stablecoins have the potential to safeguard people against hyperinflation. Hyperinflation occurs when the value of goods and services elevates by over 50 percent a month. According to Ernst & Young, the six hyperinflation-affected countries comprise Angolia, Argentina, Sudan, South Sudan, Syria, and Venezuela. The most upsetting example of this is Venezuela which witnessed approximately 54,000,000 percent overall inflation rate since 2016. Venezuela’s native currency has devalued by 95 percent, leading to its residents suffer poverty and have inaccessibility to basic human needs.
The local capital control laws imposed by the government of such countries pose challenges moving the capital outside of the country. Converting local fiat currency in stablecoins can ensure that the value of the currency is preserved, instead of holding the currency which might depreciate and reduce the purchasing power of the residents.
Stablecoins have a huge potential to prevent people against political and economic uncertainty.
Strengthen Cryptocurrency Exchange Platforms
Very few crypto exchange platforms currently support fiat currencies because of strict regulations associated with them. However, stablecoins empower these exchange platforms to address this problem and offer crypto-fiat trading pairs by using USD-backed stablecoins rather than actual dollars.
This will simplify it for crypto traders, especially newcomers, to enter the crypto market as they can trade using Dollars or Euros instead of constantly-fluctuating Bitcoin, consequently boosting cryptocurrency adoption across the globe.
Some existing exchange platforms are following this approach while other businesses are seriously considering this structure to fortify their exchange platforms. Entrepreneurs are connecting with a reliable stable coin development company to steer their venture in the right direction.
Streamline Recurring and P2P Payments
Stablecoins enable the use of smart contracts that can be enforced over time. Smart contracts are self-executing contracts that exist on a blockchain and make third party functions redundant. Smart contracts forge the path for transparent, traceable and irreversible transactions, making them a good option for recurring and P2P payments like for loan, rent, salary, and more.
For example, an employer can create a smart contract — with required conditions — to automatically transfer salary in the form of stablecoins to his/her employees at the end of each month. This is beneficial, especially for employers having their employees located at various locations across the world. This will reduce the transaction processing fee and accelerate processing, unlike the traditional system of transferring fiat currency from, say, a bank in London to a bank in New York.
The same idea can be applied to set up a smart contract between a landowner and his/her tenant to automatically transfer rental payments at the end of every month, without any concern about high fluctuations in price like with non-stable cryptocurrencies.
The current state of stablecoins is an opportunity for founders and investors. The various use-cases of stablecoins present multiple opportunities — varying in time frame and factors that drive success — which can be capitalized on by the companies. However, these companies need to comprehend their target audience to create and enable new services.
Given the momentum and benefits of digital currencies on the blockchain, stablecoin adoption is inevitable. With the increase in the number of successful stablecoin projects, we are sure to witness a more secure and borderless world.
If you are seeking opportunities to harness the potential of stablecoins and start your stablecoin project, we can help. We offer mission-driven and best stablecoin development services to navigate your project. No matter the type of stablecoin that you want to build, we offer comprehensive solutions — from ideation, development to white paper creation — to help you accomplish your goals.
Connect with our subject matter experts for any queries related to stablecoin development, or share your business needs with us for a no-obligation quote.