The price of digital assets can swing wildly in either direction – no questions about it. However, this year has mostly seen a bear market with the majority of coins down by more than 70 percent from their peak value. According to a blog post published by MakerDao on Dec. 3rd, the bear market has contributed significantly to the existence of stablecoins – cryptocurrencies insulated from price volatility.
Are Stablecoins Important
Rune Christensen, the founder of MakerDao, was quoted as saying:
“The true key to unlocking the great potential of blockchain will come with the widespread adoption of stablecoins.”
MakerDao is the company behind the Dai stablecoin and claims to provide an economic opportunity for all.
Bitcoin critics such as Nouriel Roubini have argued that cryptocurrencies are not currencies because they do not satisfy the three functions of a currency – unit of account, means of payment, and a stable store of value.
Stablecoins are the new idea used to drive forward the adoption of digital assets and enabling a “diverse set of financial activities.”
Use Cases of Stablecoins
Stablecoins have a number of practical use cases that allow them to bridge the gap between crypto and traditional fiat currencies.
Potential Global Currency
A stable digital and decentralized currency has the potential to assume the role of a global medium of exchange. This can become important in emerging markets where there are high levels of inflation and economic chaos. Venezuela and Argentina in South America are the two best-case examples.
Stablecoins are used by “traders seeking to close risk-on positions.”
South America could gain a lot from using a stablecoin such as Dai because remittances play an important role in the region’s economy. The stablecoin allows users to send money across borders without worrying about price volatility, delays, or censorship. MakerDao partnered with Wyre in August to allow businesses in over 30 countries including the U.S. to give businesses immediate access to Dai.
Dai enables businesses to speed up their payments, which in turn, increases revenues by increasing the number of payment cycles.
MakerDao partnered with Tradeshift, one of the leading companies in payments and marketplaces to enable supply chain liquidity marketplace for small business, developers, and investors.
Decentralization of Financial Services
Dai, touted by MakerDao as “world’s first stablecoin based on the Ethereum network,” has the potential to decentralized financial services. MakerDao notes that there is no neutral relationship between finance and the economy. Many small businesses are disadvantaged by this lack of neutrality.
Capital markets favor big organizations, and Dai takes the side of the small businesses by “eliminating the middlemen that charge fees for ensuring safe transactions, lending stable capital, and brokering cross-border initiatives.”
Stablecoins have gained popularity, and a number of exchanges such as Gemini and Coinbase (in collaboration with Circle) have launched their own stablecoins.