Stabecoins are tokens on blockchains or similar whose value remains stable over time around that of another asset with a relatively stable value.
Fiat currencies, stablecoins and their market-related uses
Real cryptocurrencies, such as BTC and ETH, have a very volatile market value, which means that they are not suitable for all uses. An investment in BTC or ETH carries a certain level of risk due to their high volatility, so they are often not used as coins because there are less volatile ones.
In particular, the most widespread fiat currencies in the world, such as the US dollar, euro, Chinese yuan, British pound and Japanese yen, have a value that changes very slowly over time. This means that the prices of goods that are sold in these currencies do not have to change all the time, whereas if BTC was used, prices would have to be updated all the time.
Fiat currencies are also widely used in the crypto markets for investing or trading, but they come with a few problems.
The main problem is due to the limited freedom with which they can be used.
Real cryptocurrencies do not and cannot have any real restrictions on their use, other than legal ones. When it comes to fiat currencies, however, people are always at the mercy of the intermediary they use.
The digital versions of fiat currencies cannot be exchanged peer-to-peer (P2P), but must always rely on an intermediary. This intermediary has de facto absolute power to block, refuse or cancel any transaction, although of course they only do so if they deem it necessary.
Currencies and intermediaries. What changes with cryptocurrencies
There are laws that require these intermediaries to prevent transactions to or from a country, or above a certain threshold, or if the identity of the sender or recipient is not known and verified.
With cryptocurrencies, this is not possible in the case of P2P transactions without intermediaries. This is why someone has come up with blockchain-based cryptocurrency tokens to use as an alternative to fiat currencies.
One of the earliest such projects was Tether’s USDT, which is a token whose value is always roughly that of 1 USD. It was initially traded on the Bitcoin blockchain, but then the bulk moved to the Ethereum blockchain and then to the Tron blockchain.
Thus USDT is a token traded on decentralized blockchains, but which closely replicates the value of the US fiat currency.
Many stablecoins replicate the value of the dollar, but there are also ones for the euro, the yuan and the pound. Some do not replicate the value of a fiat currency, but for example that of other rather stable assets such as gold.
Their usefulness lies in the fact that they allow users to use a currency that has the same value as a fiat currency, or a physical asset such as gold, within crypto environments.
Stablecoins and crypto markets
In crypto environments, such as exchanges, it is much easier to use cryptocurrency tokens than fiat currencies. So dollar stablecoins are much more widely used than the dollar itself. Not to mention the fact that on decentralized exchanges it is technically impossible to use fiat currencies, so using stablecoins is a must.
As decentralized cryptocurrencies such as BTC and ETH, stablecoins have a certain degree of censorship resistance, so they are much more freely usable than fiat currencies.
Thus they are used as an alternative to fiat currencies wherever the limitations, or difficulties, of using fiat currencies make the latter inconvenient to use, if not at times downright impossible.
Stablecoins overcome these limitations and barriers by faithfully replicating the value of the underlying asset, so they can be used as an alternative to fiat currencies when the latter are difficult or impossible to use.
A USDT transfer on Tron is very fast and very cheap, i.e. significantly cheaper than a USD transfer via VISA. Moreover, if done without an intermediary, it cannot be blocked, restricted or slowed down.
Many people operating on crypto markets get so used to the freedom granted to them by cryptocurrencies, that they prefer to use stablecoins rather than fiat currencies.
In the case of transactions without an intermediary, stablecoins also offer a much higher level of privacy than digital fiat currency transactions that require an intermediary.