In defence of stablecoins: dispelling the misconceptions and embracing utility
Stablecoins have recently found themselves under harsh scrutiny, with some questioning their legitimacy and value. We'll be shedding light on the misconceptions surrounding stablecoins.
Stablecoins have recently found themselves under the harsh scrutiny of well-known financial commentators, with some questioning their legitimacy and value. One prominent media commentator recently chose to tear us down without understanding the proposition or coming to us to learn more.
What their scepticism fails to acknowledge is the very unique role stablecoins play in the evolving landscape of digital currencies. In this rebuttal, we’ll shed light on the misconceptions surrounding stablecoins; address the question of income from interest head on; and explain their inherent utility.
First things first – what are stablecoins?
Stablecoins represent a category of cryptocurrencies backed by reserve assets, such as fiat currency or precious metals. They have gained popularity for their ability to combine the rapid transaction processing, security and efficient features of crypto with the reliability of the underlying asset.
The very name ‘stablecoin’ highlights one of its key attributes — stability. In a world where the value of crypto can swing wildly, stablecoins provide a reliable anchor by being ‘pegged’ to established fiat currencies like the US Dollar or regional currencies like the New Zealand Dollar. This pegging mechanism ensures that the value of stablecoins remains relatively steady, mitigating the volatility inherent in the broader cryptomarket.
An example of this is Easy Crypto’s NZDD – a coin that brings the benefits of digitisation to the New Zealand Dollar; backed 1:1 with Kiwi dollars held in a bare trust; meaning your NZDD is safe and flexible. A bare trust is a legal arrangement which sees a trustee hold and manage crypto on behalf of a beneficiary who retains control over the assets.
Not a traditional ‘investment’; but a digital currency evolution
Stablecoins were never designed to be speculative investments that promise exponential returns. Unlike more volatile cryptos that can experience significant price fluctuations, stablecoins are pegged to traditional currencies, providing a stable value.
Their primary purpose is to bridge the gap between traditional fiat currencies and the digital realm, offering a familiar and stable medium of exchange in the crypto space.
Unlike traditional banking systems that may have limited operating hours, stablecoins are available 24/7. This makes them a preferred choice for individuals looking to avoid the delays (and high fees associated with traditional remittance methods). In essence, stablecoins combine the convenience of digital currencies with the functionality of traditional money, making them a versatile financial tool.
In praise of stability in an unstable world
Stablecoins have been criticised for their lack of investment opportunity; but this is only true for the uninformed. They offer a unique advantage by enabling users to engage in decentralised finance (DeFi) opportunities seamlessly.
There are ways to use stablecoins to get more potential returns by staking. Staking stablecoins offers a cool way to make your money work for you. If you add your coins into a ‘liquidity pool’ (such as Uniswap), you gain a twofold advantage.
Firstly, by contributing to liquidity, users actively facilitate smoother trading experiences for others within the ecosystem. Secondly, and perhaps more enticingly, this allows individuals to earn passive ‘staking’ rewards. In essence, your stablecoins not only remain secure under your custody but also have the potential to generate additional value through staking rewards.
Stablecoins crucially also empower users with a unique ability to navigate the crypto landscape strategically. If an investor wishes to remain on the sidelines, waiting for an opportune moment to enter the market, stablecoins serve as an ideal ‘parking spot’ for funds.
With a simple and cost-effective crypto swap, users can transition from stablecoins to other forms of crypto when market conditions align with their investment goals. This flexibility enhances financial planning and decision-making, positioning stablecoins as valuable tools for those seeking stability in an otherwise unpredictable environment.
Regulatory compliance and transparency
Contrary to the notion that stablecoins operate in a regulatory ‘grey area’, many stablecoin projects prioritise compliance and transparency.
The legitimacy of stablecoins is reinforced by adherence to regulatory frameworks, incorporating measures to prevent illicit activities such as money laundering and fraud. Moreover, the transparent nature of blockchain technology allows for real-time tracking of transactions, providing regulators with the tools needed to monitor and enforce compliance.
Stablecoins, when issued by reputable organisations, often undergo regular audits to verify that the digital assets backing them align with their stated peg. This commitment to transparency not only builds trust among users but also fosters a regulatory environment that recognises stablecoins as valuable contributors to the financial ecosystem.
Importantly, when NZDD was launched as an MVP, Easy Crypto committed to giving back proceeds from the assets under management to the community through grants (this is already live) and interest payments (this is under development). Easy Crypto doesn’t plan to profit from the interest incurred; but to share the benefits and is doing so transparently.
Accessibility and financial inclusion
In many parts of the world, people face challenges accessing traditional banking services, and stablecoins provide a lifeline by offering a decentralised alternative. Anyone with an internet connection can access stablecoins, enabling participation in the digital economy without relying on traditional banking infrastructure.
Stablecoins bring unique benefits to the world of digital currencies. Rather than dismissing them outright, it is essential to appreciate the utility and transformative potential that they bring to the global financial landscape.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated January 16, 2024