Why Stablecoins are Essential to Driving Blockchain Adoption

As it stands, Bitcoin is the flagship product of the blockchain industry, with a market capitalization of approximately $170 billion at the time of writing (66% market dominance). It’s a vastly secure network, having not been breached since inception 11 years ago. It also boasts a 99.98% uptime, gives us the opportunity to custody our assets, disintermediate services plagued by middlemen, and engage in dynamic peer-to-peer economies. Despite this, adoption of the world’s most popular cryptocurrency remains low.

The extreme volatility displayed by cryptocurrency markets has proven a huge barrier to adoption. Stable, predictable valuations support many operations within modern day commerce. Recurring payments such as salaries, utilities, rent etc. all rely on the stability of the asset used for fulfillment. Loans, credit, savings and by extension financial planning are heavily based on the ability to predict future value. Let’s take a look at Bob’s woes when dealing with a volatile asset for a retail purchase.

Bob is looking to buy a new television, with a price tag of $1000, and resolves to put away $100 a week for 10 weeks. After 10 weeks, Bob should have amassed $1000. However, the value of Bitcoin has fallen 40%. Adding insult to injury, this happened in the 10th week, so Bob had no indication that he would be unable to afford the television until the last minute. Bob had intended to host Superbowl Sunday, and now Bob and his guests are left upset and disappointed. They may look to make last minute plans, which will cost significantly more considering everything has been booked/reserved, a cost incurred on top of the $400 Bob lost when Bitcoin’s value fell.

Cryptocurrencies are a superior medium of exchange when compared to fiat. In a decentralized ecosystem, they are able to process transactions faster, cheaper, and more securely. They enable the tokenization of real world assets, allowing for the creation of robust sharing economies. However, they have failed to fulfill the other two characteristics of effective money — being a store of value and unit of account. This makes it difficult to price goods and services, obscures financial statements and by extension the ability to make sound financial decisions, etc. Neither businesses nor consumers want to expose themselves to unnecessary currency risk.

“It’s not functional as a currency. The peaks and troughs are like an investment asset and are equivalent to gold” — Jack Dorsey