Why do we need stablecoins?

As was written about in “what are stablecoins and how do they work“, stablecoins wrap some underlying asset. The backing asset is used to give the stablecoin its underlying value, and when this asset is something like dollars or euros, we’ve introduced on the blockchain an asset with a very different characteristic than the usual native cryptocurrencies.

Now, while stablecoins initially helped traders and exchanges gain access to an asset without as much price volatility as traditional cryptocurrencies, which allowed them to trade in and out of these while keeping their assets within the blockchain systems, there are other benefits to stablecoins than just pure speculative matters.

We can imagine two parties wanting to do a payment for services. Both of them will benefit from price stability between when they agree terms and then later exchange payment. This is the traditional role of money, but when money is wrapped as a stablecoin, it brings with it all the benefits of programmable money. We can imagine all sort of use cases with programmable money. Simply the ability to easily and automatically make a transfer, given certain preconditions, on a pay-as-you-go basis, with no up front capex investment, vastly outperforms the existing offering from banks and money transfer services in the legacy world.

While cryptocurrencies serve a purpose as native assets, these bring with them many risks not suitable for the average user. Stablecoins hence can step in as that less volatile option, while keeping other native cryptocurrency benefits.