As crypto becomes more prevalent, so is the range of options that consumers have to use it. Crypto in its various forms, from cryptocurrencies like Bitcoin and Ethereum to smart contracts, stablecoins, NFTs, and stake pools, has proven to be a useful class of currency that has never before made such an impact.
While nation-states globally can create a new currency, in the hopes of turning it into a fiat currency, nowhere have we seen the value of a commodity increase so drastically.
Within the landscape of crypto, it’s clear that its widespread uses are only going to increase.
Being an asset of crypto, stablecoins present a viable opportunity for cryptocurrencies to be converted or applied into a real currency.
Stablecoins are asset-backed currencies on the digital ledger technology (DLT) or blockchain, so they tap into the same fuel source and represent a level of stability to consumers.
If you’re confused by stablecoin, don’t worry. Stablecoin is still pretty new, and its uses aren’t yet fully understood.
If you’re curious about stablecoin (as you should be) and want to know the ways it might be useful (as you should), then you’re in the right place. This article will help you understand what the future potential of stablecoin is and why you should embrace stablecoin as a payment option.
What is Stablecoin?
Stablecoins are a stable digital currency that is based on DLT or blockchain technology. There are many different types of stablecoins, but they attempt to peg their currency on a liquidatable asset. This means that almost all stablecoins are given collateral that can be liquidated if the stablecoin loses value.
All fiat currencies are theoretically backed by an asset that confirms value. For example, the US used to back the US paper dollar with gold bullion. The idea was that if you had a US dollar and suddenly the dollar value drops, you could still get back that value in a backing asset. The ability to liquidate USD and receive gold bullion is a myth, as the Gold Standard was abolished in 1985.
In this context, fiat is a representation of something that is more valuable. If anything, the fiat system works because governments mandate that the paper is legal tender for a financial transaction. The fiat doesn’t have to be asset-backed, but it does have to be mandated. The USD itself is a piece of paper, but because of the regulations that the paper went through, it is valued equitably to its deemed value.
This same concept applies to stablecoin, although the trackways for making this process happen are entirely different. Stablecoin exists on digital ledger technology, or the blockchain, so the agreements made when purchasing stablecoin are usually provided to the public ledger. This also gives the stablecoin issuer more accountability when the asset needs to be returned.
Stablecoins exist in four forms, depending on how you look at them:
- Smart contract or algorithmic
Different private entities can create a stablecoin and use a similar process for distribution and liquidation. Stablecoins issued on the Ethereuem blockchain can be held by a smart contract, which is one powerful way to ensure asset-backing and liquidation terms are met.
How is Stablecoin Different from Cryptocurrency?
You may be thinking—what’s the big difference between stablecoins and cryptocurrency?
The best way to think about this distinction is that stablecoins are a different class of cryptocurrency. It can be created and used alongside Bitcoin or Ethereum, but its purposes will be different.
The biggest difference is that stablecoins are backed by a reserve asset, whereas cryptocurrency is simply the digital currency on the blockchain (with no reserve backing).
Their values are thought to be totally different. For example, cryptocurrencies are still currently deemed a valuable currency, and buying them could be a great long-term investment. The same could be said for stablecoins as well, although their value is designed to fluctuate less drastically than cryptocurrencies.
Because crypto isn’t a fiat currency, then that means its value can drop or rise drastically in a small amount of time. This means that in terms of our economic uses, it can be hard to use crypto for everyday transactions.
If Bitcoin is valued at $10,000 today but $40,000 a month from now, everyday users might feel like they are being scammed regularly. The price fluctuations make it hard to use, as individuals either wouldn’t want to use the currency to lose the potential long-term value or, vice versa, an individual who is given Bitcoin may lose out of its estimated value if the value decreases by hundreds or thousands of dollars in a matter of days or months.
Cryptocurrencies can swing as much as 10% (each way) in the course of a day, but stablecoins present currency reliability and more regulatory control.
While a lack of centralized control is one of the biggest reasons why cryptocurrencies are of interest to public economy models, it makes them unusable in society. Enter stablecoins.
Is Stablecoin Useful in Our Economy?
Stablecoins were created to be used in our economy, so yes, they are useful.
The good news is that the more that stablecoins can be proven as a currency, the more they will be accepted.
In January of 2021, the Office of the US Comptroller cautiously greenlit the acceptance of stablecoins for banks to use, which is great news. This means that banks might put their hand in the crypto pot, which increases regulatory oversight for stablecoins and their potential as usable stablecoins.
By introducing crypto into the banking systems, centralized banks may create their stablecoin or facilitate the use of a third-party one. In turn, more people may have access to buying crypto through their bank, which would make that process far easier and exchanging crypto through integrated payment APIs.
The more that people have access to stablecoins or crypto, the more they might use it. For now, there might be some caution around whether or not accepting stablecoin is a good idea. There will inevitably be crashes, but the more that people are invested in this digital currency, the more reliable it will become, and the more dependable people will be on it. For this reason, banks and regulators will support a system even in crashes and economic downturns.
Crypto payments can open up doors in ways we can’t imagine yet. For example, because of smart contracts, stablecoins can be used to pay individuals daily or even hourly as opposed to every two weeks, drastically reducing the limitations of individuals living paycheck to paycheck.
Stablecoins also open up does for accepting more internaitonal payments without a lot of fees, currency conversion fees, and restrictions. Sending money internationally through crypto takes down that barrier and makes international payments far easier.
Ways to Accept Stablecoin Payments
If you want to start accepting stablecoin payments as a merchant or through P2P exchanges, you could petition your bank to start accepting this method of payment.
Or you can use a third-party API.
The API that you go with will depend on your needs. For example, if you want the option to transfer more than just Bitcoin, then you would use an exchange marketplace like Coinbase or Binance.
Here are some APIs to consider for different crypto uses:
- Spot Crypto Trading Apps: eToro (all-around crypto trading app), Coinbase (ideal for beginners), Binance (has a range of tradable pairs)
- Exchange And Earn Interest: BlockFi and YouHodler
- Derivative Trading: Deribit, CEX, and PrimeXBT
- Tokenized Stocks: FTX
- High Yield Lending: Lendary
These apps aren’t ideal for accepting stablecoin payments, though.
When it comes to accepting stablecoins as payment, then you need to find a payment processor who can facilitate this. Sila’s banking API, which allows business owners and developers an easy SDK for creating a banking app, banking wallet, ACH transfer, and crypto transfer, is a good place to start.
Not only do users have access to banking wallets and FDIC insurance (up to $250,000), but they also have the option to transfer Sila’s stablecoin, the SILAUSD, even with international consumers or in P2P transactions.
If you see the value in stablecoin and you want to start using it in everyday life, then consider the Sila API.