Stablecoins and Their Role in Financial Systems

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If there is something that have been able to gained massive attention recently, it is the use of stablecoins. Generally crypto started as bitcoin in the year 2009. 2009 to this point, as have actually witness a lot of transformation as more types of crypto have unfold. We have examples like memecoins which is trending right now, there is also the shitcoins which is trending, we have the Altcoins, and then we have the stablecoins.

All these types of coins have their own use case. What I mean is that, the use case of memecoin is actually different from the one of the Altcoins and different from the one of stablecoins. Seeing that the crypto market is highly volatile, I think there was high need for us to have stablecoins to help mitigate those volatility.

Stablecoin was designed or created rather so that it can help stabilise value of the pegged assets. We have different examples of them gaining massive attention. There is the example of the SBD, we have USDT and many more. Today I will be talking much more about how it works and the benefits it offers to the financial world.

Before moving to the use case of stablecoins, I will briefly talk much more about stablecoin for us to understand it much more deeper. Like I said earlier, stablecoins were deisgned so that it can gives stable value for the pegged assets. This helps to manage and overcome volatility. When it comes to stablecoin, we have different types of it and it is necessary for us to understand how each of them really works . The first is the Fiat-Collateralized Stablecoins. This is the most common and used type of stablecoins due to its application. It works in form of a fiat currency. Examples of the Fiat-Collateralized Stablecoins are like the USDT, the BUSD. They are the most common type of stablecoins that we have presently.

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The second type of stablecoins that is available is the aspect of the crypto collaterised stablecoin. Unlike the Fiat-Collateralized Stablecoins I talked about, this ones are pegged towards a crypto asset instead of a fiat currency. A perfect example for this one is the SBD that we have on Steemit platform. They are also designed to maintain high stability for the crypto in the midst of Volatility. Then the last one I will like to talk about is the Algorithmic Stablecoins. This particular Algorithmic Stablecoins is the least common and used type of stablecoins that we have in the crypto space.

Moving to the massive role that stablecoins plays in the financial system. There are numerous. But of course the first one I will like to make mention of is the aspect of reducing the effect of volatility just like I said earlier. The fact that stablecoins is always pegged to have $1 value most of the time helps to fight against the force of the volatile market whenever it comes. These helps traders and investors to see it as a better option to protect their funds or capital most especially when there is high Volatility in the crypto market.

The second benefit that stablecoins offer in the financial system is the fact that it can be used for payment. When I am talking about payment, I mean payment transactions even above the crypto sector. I was talking about stablecoin earlier and I said we have the one that are pegged to fiat currency like USD. This types of stablecoins like USDT and even BUSD are most of the time used for cross border payments. They are faster and reliable most especially in the store of value.

The other one I will like to talk about is the fact that it serve as the foundation on which DeFi which is called Decentralised finance works on. DeFi are the future of the financial world and it is here to stay. With stablecoins, financial services like yield farming, lending and even borrowing can be carried out on the DeFi platforms. This also helps to deal with market fluctuations most especially when the market is highly volatile. This helps to serve at the end of the day as financial inclusion. Financial inclusion in the sense that it can be used as a mode of payment as a great alternative compared to the usual traditional banking we have been used to for many years.

If you will ask me, I will say I am really optimistic about the future of stablecoins not only in the crypto world but also even in the financial world and I am so sure it will continue to get better and better. We are going to witness more applications of the stablecoin in the financial world.