Cryptocurrencies are extremely volatile assets, which is why they are primarily of interest to potential investors as exchange instruments for trading. However, it is legally challenging for exchanges to launch cryptocurrency trading pairs with fiat currencies because it requires obtaining an extended broker license in most countries. This is why there was a need to create cryptocurrencies whose value would be tied to the price of a specific asset. Thus, stablecoins emerged. Their main task is to simplify exchange trading.
Are stablecoins cryptocurrencies?
Technically, stablecoins are cryptocurrency tokens with a blockchain and a decentralized network. However, their value is pegged to a real asset, which can be:
specific currencies (dollar, euro);
securities (stocks of various companies);
non-financial assets (oil, gold, silver).
It is important to understand that stablecoins are issued by a specific company. Its task is to conduct emission and ensure that the exchange rate of their token closely matches the value of the asset to which they are pegged. The US dollar is often used for this purpose, simplifying exchange calculations. Launching stablecoins allows cryptocurrency exchanges to completely abandon the use of fiat currency pairs.
So, the fundamental differences are as follows:
for cryptocurrencies, the price is not tied to assets — it depends only on demand, supply, and total emission;
for stablecoins, the price is tied to a specific asset, and emission is possible only through its exchange by the issuer (the company that issues the coin).
Is the value of stablecoins guaranteed?
Have there been historical cases when the price of such a cryptocurrency significantly dropped? A vivid example is the Terra USD project. The company issued the UST stablecoin, pegged to the dollar exchange rate. But due to the hack of their blockchain, the token's value plummeted instantly, as the attacker gained the ability to issue coins for themselves in unlimited quantities. Consequently, demand for the tokens sharply declined while excessive supply triggered a sharp drop in asset value.
However, companies issuing stablecoins constantly upgrade their blockchain algorithms, providing advanced technologies to protect against potential hacks. This is of interest to major investors, who invest tens and hundreds of millions of dollars in network development. Therefore, the risk of depreciation for the most popular stablecoins is relatively low — especially if the issuer regularly confirms the presence of assets to which the token's value is linked.
The most popular stablecoins
As of 2024, the most popular stablecoins in the cryptocurrency market are:
Tether USD (USDT) — market cap about $98 billion. Issuer: Tether. Predominantly holds assets in US bonds.
Coinbase USD (USDC) — market cap about $28.5 billion. Issuer: Coinbase. Has a license to operate in the US financial market, where some of the strictest rules for securities apply.
Maker Protocol USD (DAI) — market cap around $5 billion.
First Digital USD (FDUSD) — market cap around $3.3 billion.
PayPal USD (PYUSD) — market cap unknown. Issuer: PayPal.
In theory, any company has the right and opportunity to issue its own stablecoin. There are no legal, legislative, or bureaucratic limitations in this regard. However, to popularize the coin, the issuer needs to prove that each issued token is backed by a real valuable asset.
Analysts believe that in the future, many countries will start issuing their own "government" stablecoins, pegging their value to the national currency. Plans for a "digital ruble" in Russia and a "digital lari" in Georgia are already known. Essentially, these will also be stablecoins, but the issuer also regulates emission and sales rules — so it is quite possible that only banks will be able to purchase them.
How to store stablecoins?
Stablecoins can be stored in the following ways:
On a cryptocurrency exchange account. Register, undergo verification, and exchange fiat assets for stablecoins like USDT. Many exchanges also offer peer-to-peer purchases where the platform acts as a guarantor.
On a "hot" wallet. There are numerous options available — Trust Wallet, Coinbase Wallet, MetaMask, and many others. Their main advantage is that no personal verification is required, and the creation of the wallet is anonymous. Access to the funds will be available only to the owner.
On a "cold" wallet. The most popular option is hardware wallets. This option is more suitable for those who purchase stablecoins in large volumes and plan to store them for an extended period.
How to purchase stablecoins
The simplest ways to purchase stablecoins are:
Buy them from individuals. Not the most reliable option, especially for those who have never dealt with cryptocurrencies before.
Purchase through an exchange. Convenient, with relatively advantageous exchange rates, but KYC verification is mandatory for most such platforms. There are also decentralized exchanges where purchases can be made anonymously, but they are more suitable for experienced users. Additionally, gas fees are quite high.
Purchase from companies specializing in stablecoin exchange. GeCrypto is one such example. It offers a good exchange rate and instant exchange, suitable for everyone, including those who have never dealt with cryptocurrencies before.
Directly purchasing stablecoins from the issuer is practically impossible because they primarily collaborate with exchanges or large investors willing to invest, for example, from $100,000. However, the issuer guarantees that at any moment, the holder of the stablecoin can make an exchange.
Advantages and disadvantages
Stablecoins have numerous advantages:
Almost unlimited issuance, allowing anyone to purchase digital tokens in any volume.
Low volatility and high resistance to potential manipulation of the exchange rate.
They can be used to purchase other cryptocurrency assets and fiat currencies in almost any country worldwide.
No bank account is required for storing the token, and it can be done anonymously.
There are no restrictions on the number or volume of transactions (although financial regulators are currently developing schemes to track the movement of such assets).
Around 90% of all trading pairs on cryptocurrency exchanges currently use stablecoins — BTC/USDT, ETH/USDT, BTC/DAI, and so on.
Among the disadvantages:
There are always non-trading risks of devaluation (chain hacks).
The issuer theoretically has the ability to manipulate the exchange rate, which could lead to losses for investors.
Due to low volatility, the value of stablecoins does not increase over time like gold or oil. Storing tokens solely for additional profit is not the best option.
How stablecoins can be used
Buyers of stablecoins can be found everywhere. Therefore, no matter which country an investor is in, they can always exchange their digital tokens for local currency or dollars — either as cash or transfers to a bank account. Additionally, stablecoins can be used for earning through staking. For example, by staking USDT, one can guaranteeably receive an average annual return of 1.5 to 10%. This is more than what most banks offer for currency deposits.
However, the main advantages of stablecoins are the ability to quickly transfer assets. Processing such a transaction takes minimal time (an average confirmation time of 2–3 minutes). The fee is very low — for example, the average fee for transferring USDT is only about $1, regardless of the transfer amount. There is also currently increased interest in stablecoins from citizens of countries whose national currency has high volatility due to inflationary losses. Purchasing USDT allows individuals to protect their savings from devaluation.
In summary, stablecoins are a type of cryptocurrency whose value is tied to a real asset, most often fiat currencies such as dollars. This is why they are often mistakenly referred to as "digital dollars," although this is not entirely correct. For potential investors, it is important to know that anyone can purchase stablecoins. There are currently no difficulties in exchanging them for fiat, regardless of location. The safest way to store these tokens is on hot and cold wallets.