Even though cryptocurrencies had managed to hold their ground throughout the year, their massive volatility continues to bring together a lot of critics. To provide a solution for this issue, stablecoins had been developed – which are coins backed by fiat money or financial assets – and thus far had proven to be more reliable. Does that mean we’re headed towards a market dominated by stablecoins and if yes, what would that imply for traditional cryptocurrencies like Bitcoin or Ether?
# Lower Volatility
The main goal of stablecoins is to provide a stable and reliable alternative to the cryptocurrencies as we know them. Thus far, tokens like Tether had received more positive feedback since they’re closer to what we expect from usual currencies. Stablecoins fluctuate in narrower ranges and are not vulnerable to price manipulation techniques like spoofing. Institutional investors, in particular, had shown great concerns when it comes to volatility in cryptocurrencies, the main reason why we continue to have limited interest in the market. Of course, there’s a derivatives market based on crypto, but the widespread desire to get involved is still absent.
# Trusted cryptocurrencies
A stablecoin is backed by one of a basket of financial assets. As a result, this leads to more trust in their value. With underlying assets supporting their value, the probability of a stablecoins fluctuating by a wide margin is reduced. Unprecedented situations can still occur, but if we compare to the traditional cryptocurrency market, the differences are staggering. There are reasons why crypto valuations could rise in the future and we could add that the transition towards a stablecoin-dominated industry could be one of the main engines. The underlying instruments could fluctuate as well, but as long as the current volatility will diminish, the new institutional investment will flourish.
# Regulatory compliance
Regulation for cryptocurrencies is still a sensitive issue, unresolved by most of the countries around the world. When it comes to stablecoins, though, it could be much easier to get approval from financial regulators. Assets-backed instruments already exist and having them widespread into the crypto industry would not cause any harm. As we move forward, we should expect regulation to play a more important role in cryptocurrencies, giving stablecoins a significant advantage. Although Bitcoin, Ether, Litecoin are still some of the biggest cryptocurrencies, they still operate in an unregulated environment. It’ll be interesting to watch how they will manage to evolve and change over time.