THE IMPORTANT ROLE OF STABLECOIN
Since its initial introduction in 2014, the concept of Stablecoin has quickly gained popularity and become an essential part of the cryptocurrency market. However, it doesn't only serve as an intermediary for trading in the crypto market; stablecoins and the new technological advancements around them have also paved the way for revolutionary solutions in the traditional financial market. Let's explore the importance of stablecoins through this article by BHO Network.
The Role of Stablecoin in the Crypto Market
Stablecoins have become crucial for financial activities in the crypto world due to two main reasons:
Stablecoins provide the best way for traders to deal with market volatility: Thanks to their price stability, stablecoins have become the primary method for traders to conduct transactions on cryptocurrency exchanges. The earliest crypto exchanges didn't have USD or other fiat currencies, hence the need for stablecoins to replace fiat. Traders can switch to stablecoins after closing a position to protect their profits.
Stablecoins offer the easiest route to purchase cryptocurrencies with fiat: When investors first enter the crypto market, their initial step is often to convert fiat money into cryptocurrencies. The simplest way to achieve this is by buying stablecoins pegged to the value of a fiat currency. For example, if you want to convert USD to crypto, you can exchange your USD for an equivalent amount of USD Tether (USDT).
The Role of Stablecoin in the Traditional Financial Market
Stablecoin are designed for the increasingly globalized economy. In theory, they address significant challenges and limitations in international currency exchange.
Stablecoin users don't need multiple international bank accounts to send digital money to friends in different countries; they only need a cryptocurrency wallet.
Stablecoins facilitate direct money transfers between individuals without the need for third-party intervention.
Using stablecoins reduces transaction costs, transfer times, and the inherent privacy risks associated with central bank-controlled banking systems.
Imagine you're a business owner in China wanting to pay a bill for a Japanese customer who also has subcontractors in Europe. You would need a Chinese bank account, a Japanese bank account, and a European bank account. If someone wants to send you Euros, Japanese Yen, or Chinese Yuan, third parties can hold those accounts to exchange those currencies into a form you can hold and send to your bank. And in this process, third parties can charge significant fees.
Now, what if our needs involve more than three countries? In today's globally integrated economy, the demand for cross-border money transfer is increasing rapidly and won't stop growing. We can't possess 50 different bank accounts in 50 different countries. However, with stablecoins, we don't need to; we only need a cryptocurrency wallet address containing stablecoins to solve this issue.
Especially for those valuing privacy, this aspect of stablecoins is appreciated because it can bypass the Know Your Customer (KYC) process – the requirement to submit personal documents and social security information to open financial accounts. While KYC has become routine for most of us in currency transactions, crypto advocates believe KYC poses obstacles when applied to central banks in different countries.
For a crypto investor, holding 10 different stablecoins in a Ledger wallet is possible. If I need to transfer Russian Rubles to Russia, I only need to hold the stablecoin representing Rubles in my wallet and use it like Rubles without converting. This direct model between individuals using stablecoin saves processing costs and administrative fees for third parties. With hundreds of billions of USD in profits flowing into intermediaries' pockets annually due to money transfer and currency exchange services, stablecoin and central bank digital currency (CBDC) applications can optimize those billions for businesses and consumers.
We can't deny the crucial role of stablecoins, which not only bring significant benefits to the crypto market but also offer solutions to the major challenges of the current traditional financial system. However, similar to the crypto market, stablecoins are still seen as a new and relatively young asset class, facing certain risks. Hence, investors should carefully consider before choosing to use and reserve any stablecoin.
For secure and convenient storage of stablecoins, users can utilize the 3S Wallet, a multi-chain crypto wallet that allows holding stablecoins across multiple blockchain networks with just one wallet. The 3S Wallet is a blockchain wallet product developed by BHO Network, built on the pillars of Simplicity, Security, and Safety. The 3S Wallet has been refined to simplify the interface and operations, providing users with the smoothest and easiest experience. With 3S Wallet, users can connect to DApps and decentralized derivative exchanges to trade, seizing opportunities while ensuring full control over their assets.
👉 Securely store stablecoins and cryptocurrencies with 3S Wallet:
Published on August 05, 2023
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