The Future of Stablecoins: Are They Safe?

Money has been a very significant aspect of human life. Earlier on, trade was done through exchange of goods, but then coins and paper money came into the picture. Nowadays, the world has gone one step higher by developing digital money. Among the various types of digital money receiving extensive publicity is known as stablecoins.

A lot of individuals perceive that stablecoins can alter how we spend money in the future. However, there are also big questions as to whether they can be considered safe, particularly by individuals in developing nations such as Nigeria where financial systems already have numerous issues.

Stablecoins are cryptocurrencies that are pegged or tied to the value of physical assets, such as the US dollar, the euro, or even gold. The concept here is that a single stablecoin should forever be equivalent to the asset associated with it. Using the example of a stablecoin tied to a single US dollar, regardless of what occurs in the market, that coin is supposed to have a value of one dollar.

That is not the case with other cryptocurrencies such as Bitcoin or Ethereum, which can experience significant price swings within a short amount of time. Due to such a stabile, people are more willing to use stablecoins to avoid the high risks of losing their money due to price fluctuations.

The use of stablecoins is growing in Nigeria. There are already thousands of young Nigerians who trade in cryptocurrencies, save funds, and even pay internationally. Amid the high inflation in the country and the low value of the naira, the stablecoins appear to be a secure choice.

To illustrate this, when a Nigerian employee is paid in stablecoins pegged on the US dollar, that currency will not plummet at once as the naira usually does. This causes stablecoins to appear like a powerful wealth protection.

The issue of safety is not as straightforward as it appears, however. The first issue is trust. Stablecoins should be sustained by reserves, and this means that the authority that issues them should reserve dollars, euros, or gold to the extent that it can support all the coins it releases.

But how are people certain whether these reserves exist? It has been alleged that some stablecoin firms are not disclosing their reserves. Once individuals find out later that the firm lacks sufficient assets to support the coins, the stablecoin will plummet in value. This has already occurred with certain smaller stablecoins, where people lost massive sums of money.

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The second is the problem of regulation. The world governments are still discussing the issue of regulating stablecoins. They are treated as normal financial assets in some countries, and they are virtually outlawed in others.

Cryptocurrencies are yet to be embraced fully by the Central Bank in Nigeria. At a time banks were instructed not to accept crypto transactions. Should the government choose to prohibit or heavily restrict the usage of stablecoins, the users will not be able to use them at will. This leaves a question of whether stablecoins will be left to develop or the government will ban them.

Technology risk is another critical problem. Stablecoins are available online in digital wallets. When hackers get access to these wallets or when the coin storing system fails, individuals can lose their money. This is a real threat in nations with a low level of digital security. A lot of people in Nigeria are still being introduced to safe internet usage, and scams are widespread. Without people having an understanding of how stablecoins work, criminals can easily exploit them.

There is good news with stablecoins, too. They have the ability to make cross border payments cheaper and faster. In Nigeria today, it takes a couple of days and very high banking charges to send money overseas. Using stablecoins, the transfer of money can be done nearly instantly and at a cheaper cost.

This comes in handy especially when the family is dependent on remittances of their relatives residing abroad. Small businesses can also use the stablecoins to purchase products in foreign countries. They do not need to wait in line at a bank or lose money in the naira exchange when they can pay with stablecoins.

The other possibility in the future is that stablecoins can contribute to creating a more inclusive financial system. A lot of Nigerians lack access to conventional banking. All that stablecoins need is internet and a digital wallet, both of which are less difficult to obtain than a bank account. As mobile phones become more common even in rural communities, it is possible that one day everyone can save and make payments using stablecoins.

However, solutions to the challenges must be offered to secure the stablecoins with a bright future. To start with, the companies that issue stablecoins should be transparent. They must indicate obvious signs that their coins are supported by reserves. This will create confidence in users.

Second, governments, and the Nigerian government is no exception, should develop balanced regulations. They are able to come up with rules that would keep them safe without necessarily prohibiting stablecoins even as innovation is encouraged. Conversely, regulators may require periodic audits of stablecoin firms. This will not hold users back.

Third, users need to be educated more. Nigerians are interested in stablecoins and do not completely understand how they operate. When individuals learn how to save their coins and how to prevent frauds, there will be less opportunity to lose money. This knowledge can be disseminated even through schools, banks, and even the government.

Central Bank Digital Currencies (CBDCs) are another factor in the future of stablecoins. Nigeria and many other governments are developing their versions of digital money. The eNaira already exists in Nigeria but there has been slow uptake. In case CBDCs become mainstream, governments will attempt to restrict the usage of privately issued stablecoins. However, simultaneously, stablecoins might succeed since they can all tend to be more impressive than CBDCs, including international application and global financial system integration.

In the future, most stablecoins will probably remain and be more powerful. They also provide solutions to real problems, particularly in the nations where the money currency is not stable and the banking system is weak. But at all times, their safety will be determined by how they are handled, how they are controlled by governments, and how they are handled by people.