Cheap money transfer. People have contributed as much as a million dollars in USDC for as little as a dollar in transfer fees.
International shipping is available. Stablecoins like USDC are a fantastic alternative for sending money anywhere in the world because of their fast processing and cheap transaction fees.
Because their prices are fixed to a reserve asset such as the US dollar or gold, stablecoins bridge the worlds of cryptocurrencies and regular fiat currency. When compared to Bitcoin, this significantly minimises volatility, resulting in a kind of digital money that is better suited to everything from day-to-day commerce to facilitating transfers across exchanges.
The idea of combining traditional asset stability with digital asset flexibility has proven to be extremely appealing. Stablecoins like USD Coin (USDC) have attracted billions of dollars in value, becoming among of the most popular ways to store and transfer wealth in the crypto ecosystem.

What is the significance of stablecoins?
The USDC stablecoin, for example, is backed by dollar-denominated assets in segregated accounts with US-regulated financial institutions that have at least equal fair value to the USDC in circulation. An independent accounting company attests to (i.e. publicly verifies) such accounts.
USDC, like many other stablecoins, is currently decentralised on the Ethereum blockchain. Stablecoins lack the volatility of non-pegged cryptocurrencies while retaining some of their most potent features:
- Stablecoins are open, worldwide, and available to everyone on the internet at any time.
- They transport data quickly, cheaply, and securely.
- They are digitally native to the Internet and may be programmed.
What can stablecoins be used for?
Reduce volatility. The value of cryptocurrencies such as Bitcoin and Ether changes dramatically, sometimes even by the minute. An asset linked to a more stable currency can provide buyers and sellers with confidence that the value of their tokens will neither surge or fall unexpectedly in the near future.
Assets can be traded or saved. Stablecoins do not require a bank account to hold, and they are simple to transfer. The value of stablecoins can be easily transferred around the world, especially to regions where the US dollar is difficult to get or if the local currency is unstable.
Amass interest There are simple ways to generate interest on a stablecoin investment that is often higher than what a bank would offer.
How does stablecoin work?
There are two kinds of stablecoins: those backed by reserves of assets such as fiat cash, bonds, commercial paper, or even other crypto tokens, and those that are algorithmic, or “decentralised.”
Tether, USD Coin, and Binance USD are reserve-backed stablecoins: they claim to hold enough dollar-denominated assets to maintain a 1:1 exchange rate.
According to the companies, one of their stablecoins can always be traded for one dollar.
Asset-backed stablecoins have come under fire in recent years for failing to be honest about their reserves and whether they have enough funds to back up all digital coins in circulation.TerraUSD, on the other hand, is an algorithmic stablecoin.
This suggests it has no reserves. Instead, its value was supposed to be maintained by a complex mechanism involving the exchange of TerraUSD coins for a free-floating cryptocurrency known as Luna in order to control supply.
Are stablecoins in fact stable?

Stablecoins have been advertised as safe and predictable by cryptocurrency producers, but as investors discovered this month, this is not always the case.
Despite being tethered to the US dollar, the stablecoin terraUSD plummeted to $0.77 this week. Another dollar-backed stablecoin, Luna, went below $1 on Wednesday night, while tether sank to $0.95 on Thursday.
Some investors were so incensed by the depreciation of their stablecoins that they launched a lawsuit against Coinbase on Thursday. The case revolves around the stablecoin GYEN, which is linked to the Japanese yen.
“At the same time, the GYEN’s value plummeted back to the peg, plummeting 80 percent in one day.”
Why are some stablecoins losing value?
Stablecoins have been hit by a bigger cryptocurrency sell-off, which accelerated shortly after the Federal Reserve boosted interest rates by half a percentage point. Higher interest rates, paired with rising inflation and supply-chain issues, have investors concerned that the US economy may collapse in the near future.
As economic uncertainty grows, many investors have switched their portfolios away from riskier assets, such as stablecoins and other cryptocurrencies. According to CoinMarketCap data, the price of major cryptocurrencies has dropped by 5% to 85% in the last week.
What are government watchdogs worried about?
Stablecoins have been at the forefront of conversations among US politicians about how to govern the booming cryptocurrency market.
Stablecoins, in particular, require monitoring because to their fast increasing popularity and the fact that “they are backed by assets that may lose value or become illiquid during stress,” making them “susceptible to runs,” according to a Federal Reserve research released Monday. In the financial business, a “run” occurs when all or most account holders withdraw their money at the same time because they believe the institution will not be around for much longer.
According to the Fed analysis, the stablecoin sector is “extremely consolidated,” with the three largest stablecoin issuers — Tether, USD Coin, and Binance USD — accounting for more than 80% of total market value.
This Monday, US Treasury Secretary Janet Yellen echoed the call for stablecoin regulation, emphasising how swiftly a price drop might affect investors.
“A stablecoin known as TerraUSD experienced a run and its value had fallen,” she told the Senate Banking Committee on Tuesday. “I think that simply shows that this is a rapidly developing product with financial stability issues, and we need an adequate structure.”
Stablecoin collateral types
Stablecoins under this architecture come in a variety of varieties, and collateralized stablecoins employ a variety of assets as backing:
- Fiat: The most common collateral for stablecoins is fiat. The US dollar is the most widely used fiat currency, but companies are now investigating stablecoins tied to other fiat currencies, such as BiLira, which is tied to the Turkish lira.
- Precious metals: The value of several cryptocurrencies is linked to the value of precious metals like gold or silver.
- Cryptocurrencies: Some stablecoins even employ other cryptocurrencies as collateral, such as ether, the native token of the Ethereum network.
- Other investments: Tether’s USDT was previously supposed to be backed 1:1 with dollars, but its collateral composition has varied over time, and the business revealed roughly half of its reserves are in commercial paper, a type of short-term corporate debt, in a 2021 breakdown. The issuers of this paper have not been identified, however it says they are all rated A-2 or above (A-2 is the second-best grade attainable for a corporate borrower from credit rating organisations such as Standard & Poor’s). Circle’s USDC, similarly, puts unnamed “authorised investments” alongside accounts at federally insured banks in its monthly disclosures (note, it does not say whether the accounts themselves are insured).
Do stablecoins have any disadvantages?

There are a few disadvantages to stablecoins to consider. Stablecoins have different pain points than other cryptocurrencies due to the way they are normally set up.
If the reserves are kept with a bank or another third party, another risk is counterparty risk. This boils down to the question of whether the entity has the collateral it claims to have. Tether, for example, has been repeatedly questioned about whether it maintains a real 1-1 backing between USDT tokens and US dollars.
In the worst-case situation, the reserves backing a stablecoin may be inadequate to redeem every unit, thus undermining trust in the coin.
Cryptocurrencies were designed to take the place of intermediate organisations that are traditionally trusted with a user’s money. Intermediaries, by definition, have control over that money; for example, they can usually prevent a transaction from taking place. Some stablecoins reinstate the option to halt transactions.
The USD currency openly features a back door to block payments if coins are used illegally. Circle, one of the companies that created USDC, confirmed in July 2020 that it had frozen $100,000 of the stablecoin at the request of law enforcement.
Is every stablecoin linked to a national currency?
The most popular stablecoins are now tied to the US dollar, much like the US dollar acts as a reserve currency for governments around the world. A single unit of tether, USD coin, or Binance USD is approximately worth $1.
The underlying asset, however, does not have to be a national currency. The asset could be a commodity such as gold (as with kitco gold), an algorithm such as dai, or even another cryptocurrency such as bitcoin (bitUSD).