The last few days stablecoins have been a center of attention in the crypto world. On Wednesday, October 24th, Tether burned 500 million USDT stablecoin tokens. The past few weeks have seen massive transactions of USDT, particularly after the cryptocurrency lost parity with the U.S. dollar last week amid questions about Tether’s access to banking services. Besides Tether other stablecoins have also experienced unusual behavior. These events led thousands of people around the world to start questioning on the need for several stablecoins for cryptocurrency investment and its reliance for intermediary purposes. Now, more than ever, cryptocurrencies become more and more stable and many start to question whether stablecoins are an imperative.

 

Strong changes in the market cap can either boost the market with unique investment opportunities or create a temporary recession, pulling out investments and devaluing coin prices. In an unpredictable environment, such as crypto world, stablecoins are important as their role is to stabilize this unpredictability with the market’s volatility, creating an investment space for secure deposits and predictable intermediary transactions.

Any institution offering lending, wealth management or intermediary services, such as LOTS, should consider entering stablecoins based on the trust in their community. The value of a stablecoin can be pegged to fiat currencies, exchange traded commodities, it can be backed by another cryptocurrency and linked to a decentralized autonomous organization which controls issuance and pricing — therefore offering real and stable value to its token. These institutions offering financial services should have stablecoins play an intermediary role for non-volatile transactions while keeping its nominal value parallel to its real value.

 

Institutions such as those need to consider using stablecoins for transactions within their ecosystem to avoid harming their clients’ financial transactions. If a lending ecosystem for digital assets uses a volatile coin for lending and intermediary services, it can potentially harm individuals involved in those transactions. Specially for lending purposes, trading with an unpredictable currency can seriously jeopardize both the lender or the borrowers among any terms of agreement involving an unpredictable token used for a specific loan or transaction. On the other hand, a stablecoin offers any possibility for a fair transaction as a token’s nominal value possesses a real value and therefore a fair loan or deposit, as well as future predictability in real terms.

Stablecoins also open up more accurate possibilities for better forecasts for general investments and lending opportunities as both the lender and borrower can more accurately understand what the interest rates will actually imply.

 

It is important for institutions and governments around the world to rely on the opportunities offered by stablecoins. Japan’s GMO Internet Group has recently announced plans to issue a yen-pegged stablecoin. Opportunities such as those won’t harm a nation’s seigniorage or go against their monetary policies (two of the most common criticisms that go against governmental interests). These coins can offer several advantages as fiat tokens and can even boost the use and trust in cryptocurrencies around the world.

Brian Armstrong Coinbase Daniel Jeffries Noam Levenson Ben Yu Taylor Pearson