What is the purpose of (fiat pegged) Stablecoins?

[c_atlas]

Why do people value stable coins that are pegged to fiat currencies? As I understand it, people hold onto stablecoins like Tether to avoid Bitcoin/Eth's large price fluctuations, although I'm not sure that this is the only reason. Do exchanges use stablecoins to make transfers that would otherwise be too difficult/slow through the banking system?

I frequently hear people describe being long bitcoin as being short the US Dollar, and that gold, silver and other precious metals are better stores of value than USD because their supplies are difficult to increase. Every stablecoin pegged to the US dollar is subject to the same level of inflation, so your Tether essentially sits on top of a digital fire that burns away 2% of the value every year. Isn't the entire crypto ethos centred on the idea that the asset/currency's value/supply is *not* influenced by a centralized government? Is this not why bitcoin is inherently deflationary?

To me, fiat pegged stablecoins almost seem like the worst of both the legacy and future banking systems, especially since there are so many different coins that are pegged to the same fiat currencies. That being said, they have massive trading volume and market caps, so I must be missing something. What do you guys use stablecoins for, and how long do you typically hold onto them?

[bitmover]

Do exchanges use stablecoins to make transfers that would otherwise be too difficult/slow through the banking system?

I don't know about exchanges, but traders use it, and A LOT!! That is certainly one of the main reasons stable coins exists.

I frequently hear people describe being long bitcoin as being short the US Dollar, and that gold, silver and other precious metals are better stores of value than USD because their supplies are difficult to increase. Every stablecoin pegged to the US dollar is subject to the same level of inflation, so your Tether essentially sits on top of a digital fire that burns away 2% of the value every year. Isn't the entire crypto ethos centred on the idea that the asset/currency's value/supply is *not* influenced by a centralized government? Is this not why bitcoin is inherently deflationary?

People also use Stablecoins when they live in a place where it is very expensive or difficult to buy USD directly.

For example, anyone can make an account in Binance and buy 100,000 USD (less than 2 BTC) in binance. But it is not easy to buy 100,000 USD in a country from latin America. There is a LOT of paper work and taxes and fees to pay.

And yes, ofc USDT has the same inflation of the USD.

To me, fiat pegged stablecoins almost seem like the worst of both the legacy and future banking systems, especially since there are so many different coins that are pegged to the same fiat currencies. That being said, they have massive trading volume and market caps, so I must be missing something. What do you guys use stablecoins for, and how long do you typically hold onto them?

I agree 100% with this. Stable coins are the worse of the banking system and the worse of cryptocurrencies.

Stable coins are centralized and they are risky also.
WHen you buy USDT you are basically lending money to TETHER, a private company. That company  promises to pay you back 1 USD for each USDT, but there is guarantee that will have the money to pay everyone. And the worse: You are lending money with zero interest rates.

That being said, stable coins are useful for making trades, transactions and also are a good gateway Local Fiat X USD for people who live in poor countries.

[jackg]

You are missing something and it's that not everyone is the same.

Litecoin and dogecoin are not deflationary by design and they have value. The bitcoin being deflationary and a digital money system are true, but deflationary currencies and economies have negative connotations and bad affects (like how inflation has bad affects).

Inflation causes people to take risks and to invest in something. Deflation causes people to just keep holding an asset or take higher risks and either do it with less money or end up with less money.

If you check a site that tracks the defi lending %, you might understand why people are using stablecoins. Some might be trying to get a better interest on their fiat (4-8%), some might just be using it for holding funds as a go between between exchanges and other exchanges to eventually fund their bank account.

(also the more places you store funds, the less you think you have to spend and the more you save - often). If you've got $1000 usdt in a random eth address it might not be perceived as spendable as it might be if it were sat in a bank account.

[c_atlas]

People also use Stablecoins when they live in a place where it is very expensive or difficult to buy USD directly.

For example, anyone can make an account in Binance and buy 100,000 USD (less than 2 BTC) in binance. But it is not easy to buy 100,000 USD in a country from latin America. There is a LOT of paper work and taxes and fees to pay.

This is actually very insightful. I recall hearing that in many places where there is currency pressure, as soon as you get out of the airport street merchants will offer to buy/sell USD. I wonder if stablecoins will cause physical USD to fall out of circulation in these places, as it must be easier to get a hold of if you have internet access and say, remittance paid in btc/xlm/whatever.

You are missing something and it's that not everyone is the same.

Litecoin and dogecoin are not deflationary by design and they have value. The bitcoin being deflationary and a digital money system are true, but deflationary currencies and economies have negative connotations and bad affects (like how inflation has bad affects).

Inflation causes people to take risks and to invest in something. Deflation causes people to just keep holding an asset or take higher risks and either do it with less money or end up with less money.

Litecoin is deflationary, it experiences halvings and has a hard-cap of 84M coins. I don't think inflation necessarily incentivizes people to "invest" as much as it does to "consume", and if anything, a deflationary currency would make people seriously consider if their purchases are worthwhile. Regardless, my point was strictly that the inflation rate of USD pegged stablecoins is not algorithmically determined or predictable, its freely manipulated by the federal reserve; that's the problem.

(also the more places you store funds, the less you think you have to spend and the more you save - often). If you've got $1000 usdt in a random eth address it might not be perceived as spendable as it might be if it were sat in a bank account.

This is an interesting point, I agree that it may be harder to spend usdt, or that you'll be less incentivized at least. HOWEVER, here you've mentioned the word save while referring to an asset who's inflation rate is guaranteed to be above 2% for quite some time. I think we would both agree that if you want a savings account, hodling deflationary bitcoin is the better move.

[Darker45]

There is no reason to hold on to stable coins. You only make use of it for certain purposes.

As you've already pointed out, I also use stable coins to avoid price fluctuations. It is a lot easier to play with stable coins against BTC and altcoins than BTC against altcoins. If you are highly uncertain where the price direction goes next, stable coins are a nice place to park your funds.

Also, I agree that moving stable coins, especially in cross-country transactions, is a lot easier than if you do it with the fiat these stable coins represent. The hassles involving fiat is sometimes unbearable.

Finally, fiat/crypto trading is exciting. However, it is not widely offered by exchanges and there are additional conditions for people to be able to trade fiat. Stable coins fix this.

[Wexnident]

I suppose it's simply because we haven't (or can't) fully leave the influence of the need to use fiat. It's just THAT useful, especially in this world where the majority of the transactions are still heavily influenced by a centralized government. Not only that, as others (and you) have said, Stablecoins help in avoiding market fluctuations, which is very helpful for every trader out there. Not to mention that stable coins are probably the easiest method that the government or companies could use to create their own centralized digital currency.

[Kakmakr]

You get different reasons why people use Crypto currencies and one of the reasons are profit potential due to high volatility. So for this, some traders would opt to use coins with high volatility, because they can beat inflation and it is also a high risk investment in their portfolio.

Other people use Crypto currency for eCommerce and retail payments and they do not want to deal with high volatility.. so they will opt for coins with low volatility. Some of the old Fiat traders and Forex traders feel comfortable with Stablecoins, because trading with that, feels like something that they are used too. (Fiat currency trading) 

[avikz]

To me, fiat pegged stablecoins almost seem like the worst of both the legacy and future banking systems, especially since there are so many different coins that are pegged to the same fiat currencies. That being said, they have massive trading volume and market caps, so I must be missing something. What do you guys use stablecoins for, and how long do you typically hold onto them?

Stablecoins are most useful to the regular traders. Also stablecoins help a person to protect their capital investment during a bearish phase in the market. It is not always very easy to  convert to fiat during a trade cycle and convert that fiat back to crypto. That's where the stablecoins entered into the market and instantly became a hit.

It saves traders from the hassles of conversion and critical calculations during a trade. Don't think it causes any issue with the banking system because stablecoins live within the crypto ecosystem!

[awik p]

besides that I can say that stablecoins are useful for transit our money if you don't want to trade within a certain time. therefore with stablecoins as if to protect our assets from price fluctuations

[davis196]

The other forum members have explained the usage of stablecoins,but let me remind you about the conspiracy theories about one stablecoin-Tether.
Some people are saying that Tether was created to artificially boost the value of Bitcoin and all crypto coins,by creating fake trading volume and using fractional reserve banking techniques.
Fractional reserve banking means that the promise of the Tether team-every coin to be backed by one dollar might be fake and there's no 100% USD backing of all USDT.
For example,if there are 1M USDT backed by 100K USD(instead of 1M USD),and those 1M USDT and used to boost the crypto prices,then Tether is creating a bubble.
However,this is just a theory...

[dihari]

I don't know about exchanges, but traders use it, and A LOT!! That is certainly one of the main reasons stable coins exists.

This is the answer. There is no reason to have a crypto pegged with 1:1 fiat, it's all about the function. Tether make it easy for traders to move their funds, and it help exchanges to provide fiat pairs without breaking government regulations.

[Psynthax]

stablecoins are like save point in trading world, many people use it to keep the value of their asset or to avoid fluctuation and that's it there's nothing more than that, even you see if stabelcoins are used for making transactions why many crypto payment gateways still didn't implement it and instead still use the volatile ordinary cryptocurrency? it's because the people somewhat find it ineffective therefore lacking demand but that's only my assumption. However when it comes to exchange you don't have too much choice, it was USD representation made by the exchange itself back in the old days, now it's stablecoins that could be transacted anywhere and most of people don't care about the inflation rate since people rarely keep it in their wallet for too long.

[DrBeer]

Why do people value stable coins that are pegged to fiat currencies? As I understand it, people hold onto stablecoins like Tether to avoid Bitcoin/Eth's large price fluctuations, although I'm not sure that this is the only reason. Do exchanges use stablecoins to make transfers that would otherwise be too difficult/slow through the banking system?

I frequently hear people describe being long bitcoin as being short the US Dollar, and that gold, silver and other precious metals are better stores of value than USD because their supplies are difficult to increase. Every stablecoin pegged to the US dollar is subject to the same level of inflation, so your Tether essentially sits on top of a digital fire that burns away 2% of the value every year. Isn't the entire crypto ethos centred on the idea that the asset/currency's value/supply is *not* influenced by a centralized government? Is this not why bitcoin is inherently deflationary?

To me, fiat pegged stablecoins almost seem like the worst of both the legacy and future banking systems, especially since there are so many different coins that are pegged to the same fiat currencies. That being said, they have massive trading volume and market caps, so I must be missing something. What do you guys use stablecoins for, and how long do you typically hold onto them?

Stable coins are a convenient tool for fixing profits / losses, for those who chose the "fiat" side for the measurement system in the crypto world. In fact, crypto players are divided into 2 main camps:
- those who "count" in bitcoin
- those who count, conventionally, in dollars
It is for the latter that various types of stable coins are intended.

[sheenshane]

IMO, it's actually simple, they frequently use currency-backed coins that make them stable because the transaction fee is massively lower than having the converted from mainstream cryptocurrencies to cash.

Inflations are also sometimes obvious that only stable coins can save you from the decrease.  That’s why traders would better keep their assets with stable coins before they jump back to the volatility to try to benefit.  But however, this is a very amateur move for me and it might they think the way that if 90% of altcoins go down, everything else will follow.  Cause it’s not and you can still take advantage of the volatility.

[Lucius]

The idea behind stablecoins is not something new at its core, as people have simply sought a way to profit by inventing a coin that should be equated with some fiat currency in a 1:1 ratio. If these people were honest in their intentions, the problem would still exist, but of course it would be smaller because every stablecoin would be backed with say $1 - and not as it was once revealed that 70% of all USDT has fiat coverage and the rest does not.

In other words, stablecoins are similar to fiat currencies, but with one very important difference - they are issued by private companies that can print them with almost no restrictions - which justifiably leaves doubt as to how much stablecoins are in circulation without actually being backed up with anything.

Of course, ordinary people are not interested in technology or how the market is regulated - they want an efficient and cheap way of transaction and the highest possible profit. 

[The Sceptical Chymist]

I don't know about exchanges, but traders use it, and A LOT!! That is certainly one of the main reasons stable coins exists.

That's pretty much the only reason I can think of for stablecoins to exist, i.e., for traders to be able to park their money in something less volatile than what they're trading.  On the other hand, I still find it crazy that anyone would leave coins on an exchange when they're done with their trades, which I suspect a lot of them are doing with Tether and the like.

What drives me nuts is how much relevance stablecoins are given based on market cap.  I just read a thread recapping a news story about something like "the top 10 cryptos to invest in" and Tether was on the list.  That's absolute nonsense to anyone who actually knows what Tether is, but it isn't the first time I've heard crap like that.  They serve one purpose and one purpose only IMO, to substitute for cash on cryptocurrency exchanges that don't or can't deal in actual fiat.

[mu_enrico]

Yep, it's for trading.
Stable coins won't be useful if there is fiat market on every exchange so that when BTC dump, traders can cash out in fiat (like USD, EUR, etc.). But deposit and withdrawal with fiat is kinda complicated because of banking, KYC/AML. Thus, with stable coins, no banking needed for above example. I use Binance, OKEX, etc., but never use fiat in these exchanges.

[(o)(o)ilikeboobs(o)(o)]

Stablecoins play an important role in trading because that's where traders keep their assets from being lost after the market falls. Stable coin helps traders to keep their assets in a stable state so that they can calculate for further transactions. Each stablecoins is secured by FIAT kept in the bank. That is what makes people completely safe to hold.
The more stable coin is printed, the more money flowing into the market is. Tether has printed out about 40 billion dollars in 1 year from March 2020. Along with further printing, the capitalization of the entire cryptocurrency market has increased to 2000 billion dollars.

[Silberman]

Why do people value stable coins that are pegged to fiat currencies? As I understand it, people hold onto stablecoins like Tether to avoid Bitcoin/Eth's large price fluctuations, although I'm not sure that this is the only reason. Do exchanges use stablecoins to make transfers that would otherwise be too difficult/slow through the banking system?

I frequently hear people describe being long bitcoin as being short the US Dollar, and that gold, silver and other precious metals are better stores of value than USD because their supplies are difficult to increase. Every stablecoin pegged to the US dollar is subject to the same level of inflation, so your Tether essentially sits on top of a digital fire that burns away 2% of the value every year. Isn't the entire crypto ethos centred on the idea that the asset/currency's value/supply is *not* influenced by a centralized government? Is this not why bitcoin is inherently deflationary?

To me, fiat pegged stablecoins almost seem like the worst of both the legacy and future banking systems, especially since there are so many different coins that are pegged to the same fiat currencies. That being said, they have massive trading volume and market caps, so I must be missing something. What do you guys use stablecoins for, and how long do you typically hold onto them?

Stable coins bring liquidity and an increase in speed to the market, before them if you wanted to avoid the volatility of the market and sell your bitcoin you had no option but to do it and send your money to your bank account, this could take days and back then your account could be blocked for dealing with cryptocurrencies and if you wanted to comeback to the market then this took you days as well, stable coins allow you to get in and out of the market of cryptocurrencies in minutes and protect your privacy as well so I can see why they are popular.

[fiulpro]

What I do think is they are only good for :- Trading


Since not every Altcoin is easily tradable with USD and the exchange is needed to be fast and the stable coins do provide an excellent option to do that. They for sure are not used by people to hold for value. I do think that in a way other than trading , they are honestly nothing but fiat and not 🚫 needed.

Since they are backed some traditional people consider them a good idea 💡 for Investment therefore it's easier for them to be introduced in the crypto economy.

Their fee is also reasonable. Which is a big plus. People can trust them more and at the same time use it more often to send/recieve.