What is the purpose of (fiat pegged) Stablecoins?

[Ultegra134]

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.

I had the exact same question but never actually made a thread or did any extensive research about it. I never understood their purpose, apart from being used in new coin pairs, something I've noticed with USDT and BUSD on Binance. Apart from that, I never really comprehend what they are for.

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[Hydrogen]

The term stablecoin represents a solution to crypto price volatility on the consumer's end. Stablecoins attempt to stabilize volatility. Which is where the name derives from.

Merchants and retailers who accept crypto payment often choose not to hold crypto long term. Due to volatility fluctuations and the uncertainty involved.

But what of price volatility for those who wish to purchase crypto in the forseeable future? There is price creep with some options. Someone could buy bitcoin @ $50k. With the actual price being $52k when the buy order is finally executed. Stablecoins fulfill a role of allowing more instantaneous purchasing of crypto, to reduce volatility effects.

Stablecoins like tether being pegged to the dollar adds for increased stability and reduced effects of volatility over time.

[Febo]

What is the purpose of (fiat pegged) Stablecoins?

In many countries you need to pay taxes on profit you make when you exit crypto to fiat. Stable coins are still crypto although they are valued same as fiat. So you dont need to pay any tax. That is the bigest value of stable coins.

[SquallLeonhart]

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?

Everyone already gave the answer, however they are forgetting one eternal truth ; because others do so. People use USDT or similar stuff, because others do so, do you think people couldn't cash out of bitcoin to wait to get back into bitcoin beforehand? Way before USDT was a thing? We had bitcoin way before anything like stablecoins happened, how? Well you had your exchange (local or global) where you would pay fiat to get bitcoin and pay bitcoin to get fiat, and it was on your account until you withdrew it, what happened?

Someone created USDT and similar projects, the most used one became USDT and people started to use it, USDT did huge marketing, they grew big, spent a lot of money to buy bitcoin, get it backed easily, and then they basically let everyone else to do the same as well, that was basically the end of it. So this is why I think it is quite good right now, that is the only reason, one person used it, then shared with others and that is the only reason it is so big now.

[laredo7mm]

What is the purpose of (fiat pegged) Stablecoins?

In many countries you need to pay taxes on profit you make when you exit crypto to fiat. Stable coins are still crypto although they are valued same as fiat. So you dont need to pay any tax. That is the bigest value of stable coins.

But to use crypto in daily life, users need to convert their crypto into fiat because most of those transaction goes through bank were tax implemented.

this is why I think it is quite good right now, that is the only reason, one person used it, then shared with others and that is the only reason it is so big now.

Not only usdt every new project needs to have a strong backup and good marketing. Good marketing is the key to the success of a new project and that's what happens. Many exchanges offer USDT pairs against other nonstable coins and people started using heavily USDT because they have no other choice but to convert their assets to USDT to convert their assets in the time of fluctuations.

[slapper]

Because of the high demand, fiat pegged has a greater volume than most other cryptocurrency assets. It makes the transaction easier and people can evaluate their asset based on things that are (perhaps) popular to most people around the world: USD.

I know that fiat is the worst asset in the world if you know its true intrinsicness. The problem is, only a few people care about the fundamental. But, just give people the freedom of choices. If they still love the inevitability of the inflation existing in fiat, they would definitely prefer stable coins among others.

[Twentyonepaylots]

I'm not sure about how people use their stablecoins, but with the current boom in Yield Farming popularity, I found greater use for my Tethers. See, with regular volatile cryptocurrencies my holdings and stakings are very susceptible to impermanent losses, which happens when you stake a token and the token depreciates in value. I'd still get my staking rewards, but it will be much less valuable than if I had just held on to them. With stablecoins this doesn't happen because at the end of the day, the coin has no chances of depreciation, because it is tethered on a fiat currency. So I can still enjoy greater APYs without risking myself to lesser profit.

[Henrobakkara]

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 believe that you have answered that question right there. Investors will not regularly hodl stable coins but only to check the price fluctuation on their trading assets. Stable Coins to me are basically to reduce loss in the time of downward movement of price. 

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.

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?

Hence their price are more likely to increase resulting in profits on investment which I believe is the sole purpose people invest in any thing, to make profit.

So like I said earlier, stable coins to me are basically to hodl your profits when the market value of your trading assets are in a downward trend.

[paxmao]

These are mostly about avoiding having to use fiat. They are not an investment as they are as they say stable so you should not expect their price to rise or fall sharply.
There are many reasons why you would rather not exchange your crypto for fiat, and probably the most important one is that you may be realising a profit and you´d be subject to the corresponding taxes. If you just want to trade and avoid that effect, you can use stable coins.

[magneto]

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?

What you said about stablecoins being the worst of both worlds is precisely how I feel as well.

It essentially combines the lack of regulation of the cryptospace with the centralisation and fractional reserve of the traditional banking system. It makes absolutely no sense to hold a stablecoin in the long run - if you want exposure to fiat for whatever reason, just buy US treasuries instead and earn a measly (yet positive) return on your fiat.

But in the very short term, stablecoins do have their merits - and the most obvious is its transactional aspect. It streamlines the trading process for high frequency traders quite a bit as they don't have to deal with clearing houses that take ages.

[nightxglow]

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.

Ah that's so, out of all replies i found this one really interesting and open my mind, i never thought that stable coin can be used like that, but now that you mention it, well that surely is really beneficial to buy usd without needing to deal with unnecessary things. But then, it might be really bad for the bank, and it's really dangerous i guess if it's getting too large, or that people prefer using stable coin instead and making the banking system go worse. But, there's nothing that can be changed to that though. Thanks for the answer it gives me new knowledge and perception.

[bitgolden]

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 just plan to make use of stablecoins or fiats on exchange, to book my profits from bitcoins; I may sell my BTC by end of this year and then I will wait bitcoin to have correction like 50% to buy back. So, I may need to hold those stablecoins/fiats for almost one year of time. This way I will try to multiply my bitcoin stash. I guess this will simply explain the real world application of having stablecoins. If I use mu local fiat and withdrawing to my bank account then I need to face taxation complications. So, to stay within crypto still to enjoy all the benefits of fiats, I prefer to use stablecoins.

[goldade]

Just like you said, many people use stable coins just like the USDT and BUSD and USDC in order to avoid the fluctuating prices of bitcoin and other cryptocurrencies.
However, you should also know that in many countries,  especially African countries, it is used as a store of value instead of their local currencies which lose value by the day. It is easier to buy USDT on an exchange that to buy the US dollar in a bank.
Another reason the stable coins are important is because many of these altcoins are not paired against Bitcoin or Ethereum on many exchanges and the USDT is a good alternative.

[bitmover]

But then, it might be really bad for the bank, and it's really dangerous i guess if it's getting too large, or that people prefer using stable coin instead and making the banking system go worse. But, there's nothing that can be changed to that though. Thanks for the answer it gives me new knowledge and perception.

It is somehow bad for thanks, but not enterily.

The existence of a fiat backed stable cryptocurrency depends on the existence of the same amount of fiat inside a bank!

This is how they make tons of money, the banks and Tether company.

If you take a look at Coinmarketcap.com now, you will see that there are about $48,685,875,322 (48 billion USD) of USDT coins. This means that, somewhere in a bank, theoretically, there are 48 billions USD under Tether's account in a bank. And that money is invested, they are probably taking about 1%-2% per year at least out of it!

While all that holders do not get any passive income for holding USDT, they get the other benefits I mentioned (but there is a risky tether may not pay everyone if thye have some financial problem)

[wiss19]

Another reason the stable coins are important is because many of these altcoins are not paired against Bitcoin or Ethereum on many exchanges and the USDT is a good alternative.

You mean some pairs of coins are not being traded against BTC or ETH but against USDT? I have not come across such thing in my crypto exchange; all coins are being listed with BTC pair and most ERC20 tokens are getting listed against ETH and some pairs are getting listed along with USD pair and only after that alone some devs go for listing with USDT pairs.

I guess these are preferences of devs as exchange will charge them for each trading pairs. So, not sure it is an option for easier value giving to token or new coins if it is directly paired against a stablecoin.

[Bitstar_coin]

Crypto is highly volatile in days when all market is going down stablecoin is your last resort, itbis pegged to fiat because this way it will preserve it's original value of $1 - 1usdt or whatever stablecoin suit your fancy,
Trader's and non Trader's use stablecoin coin to preserve their assets worth, during the time of market crash you gain alot by hedging your funds with stablecoin and have the opportunity to buy the dip with your funds value intact, it is important for so many reasons.

[Silberman]

What is the purpose of (fiat pegged) Stablecoins?

In many countries you need to pay taxes on profit you make when you exit crypto to fiat. Stable coins are still crypto although they are valued same as fiat. So you dont need to pay any tax. That is the bigest value of stable coins.

I have forgotten about that use as well, many countries have legislation in which the only time you need to pay taxes on your cryptocurrencies is when you sell them for fiat or you use them to buy a product, like a Tesla, however I wonder how long this loophole is it going to exist as it gives a huge incentive to people to never get out of this market which makes it grow even faster, but if governments admit that stable coins are the same as their fiat then they are basically recognizing them as legal tender and that is something they do not want to do either.

[just_Alice]

Basically, anyone who's interested in cryptocurrency for the purposes of everything BUT investment would rather use stablecoins, I think. The reasons would be all the same as the ones why people use cryptocurrencies in the first place:

1. Easy to make transactions all over the world with no need to overpay when sending big sums of money;

2. Avoiding taxes, make your profit untraceable (to some extent), but, at the same time, don't risk losing money while making money operations;

3. Send and receive your money whenever you want, no paperwork and bureaucracy, which can be time-consuming;

But for crypto ideologists and investors, surely, that's not enough. While such coins as USDT are pegged to fiat they're pointless in terms of independence and decentralization and are subject to inflation as well, I agree with you on that one.

[10_sjdovn_10]

This is because there is Fiat, which after the advent of Colored Coins had the ability to record any asset in the blockchain, so Theter was an project to be able to be equal to 1 dollar in the digital space, which makes trading easier in exchange offices.