Why Stablecoins didn't kill BTC demand?

[Comeacross]

If a superior payment money exists, economics says demand for volatile money should drop but BTC change this narrative. If people just wanted digital dollars, I think Stablecoins already solved that since 2015 or so. USDT/USDC have around $260B marketcap with instant settlement and no volatility. This should kill demand for volatile money like BTC but no, BTC hit ATH $126k last year and still sits comfortably at $1T+ marketcap instead.

In theory money have 3 functions. Medium of exchange, unit of account and store of value. Stablecoins have these features but despite BTC volatility, it's the most preferred as store of value.

Is it just because of censorship resistance? Or Maybe there is something deeper about having an asset with no counterparty or issuer that people prefer even when there are cheaper alternatives to move dollars on USDT.

I'm not comparing the two to know which one is better. They are clearly different tools but I'm curious why the success of Stablecoins didn't kill BTC economic case.

[pooya87]

Stablecoins are not money since they are not store of value. They are pegged to fiat and since fiat is a currency not money (fiat is not a store of value) the pegged cryptos inherit the same flaw.

I'm not comparing the two to know which one is better. They are clearly different tools but I'm curious why the success of Stablecoins didn't kill BTC economic case.

You answered your own question. They are different tools.

Stablecoins are centralized and are not store of values. They are also not censorship resistant and they have no mutability. Your coins can be frozen by the company that owns and controls everything regarding that stablecoin. So whenever you use a stablecoin you are using a much riskier version of fiat through banks or one of those online wallets like Paypal!
Utility-wise the stablecoins serve only one purpose and that is to be used by altcoin traders and they really don't have any utility outside of the "crypto world".

Bitcoin on the other hand, is decentralized, censorship resistant and is secure and mutable. Your money is safe when it is in bitcoin. Nobody can take it from you, freeze it or censor it.
Utility-wise bitcoin is designed to work as a payment system and can be used by anyone for anything from anywhere.

[ultrloa]

I'm not comparing the two to know which one is better. They are clearly different tools but I'm curious why the success of Stablecoins didn't kill BTC economic case.

You answered your own question. They are different tools.

Stablecoins are centralized and are not store of values. They are also not censorship resistant and they have no mutability. Your coins can be frozen by the company that owns and controls everything regarding that stablecoin. So whenever you use a stablecoin you are using a much riskier version of fiat through banks or one of those online wallets like Paypal!
Utility-wise the stablecoins serve only one purpose and that is to be used by altcoin traders and they really don't have any utility outside of the "crypto world".

Bitcoin on the other hand, is decentralized, censorship resistant and is secure and mutable. Your money is safe when it is in bitcoin. Nobody can take it from you, freeze it or censor it.
Utility-wise bitcoin is designed to work as a payment system and can be used by anyone for anything from anywhere.

Also those coins are not serving the same purpose.

Stable coins is same like a digital version of our fiats, which also a centralized and can be controlled by its issuer. This is why we see those events on where they can froze a transaction especially if they see something suspicious or illegal situations happening. This coins might be useful for people on any exchange that they like, since it does not drop in value, but reality outside this does not give freedom to people use it because its centralized coin.

Bitcoin is so opposite with those stablecoins, because no one can froze their funds and people holding it have full ownership of their balance. What stable coin could offer to its user is convenience, but Bitcoin gives total freedom also sovereignty to people use this coin. So if the goal of investor is to have total control with their wealth, Bitcoin is best option they could choose with this matter.

[d5000]

pooya87 has already nicely answered almost everything. Stablecoins are basically PayPal but with a slightly other technology and the same or even a higher risk.

They have one single advantage over both PayPal and credit cards though: Merchants normally don't have to pay fees when they accept stablecoins. They will have to pay a crypto exchange to exchange them to real fiat however.

There is of course then the reason that many people currently buy Bitcoin because they think the price will increase, and that is still the main use case. And considering the long term price trend they probably are right, even if in the short term there can also be losses. They can also use Bitcoin to short it (which creates demand via lending). Stablecoins do not provide any speculative value. With one exception: When a stablecoin is about to fail (case TerraUSD in 2022), it may sense to short it.

For someone like me who likes the currency aspect of Bitcoin, this is not entirely positive, but I believe this will improve once really a good L2 arrives. I see (anecdotical evidence, I know) more Bitcoin-accepting merchants every year.

[reagansimms]

If a superior payment money exists, economics says demand for volatile money should drop but BTC change this narrative. If people just wanted digital dollars, I think Stablecoins already solved that since 2015 or so. USDT/USDC have around $260B marketcap with instant settlement and no volatility. This should kill demand for volatile money like BTC but no, BTC hit ATH $126k last year and still sits comfortably at $1T+ marketcap instead.

In theory money have 3 functions. Medium of exchange, unit of account and store of value. Stablecoins have these features but despite BTC volatility, it's the most preferred as store of value.

Is it just because of censorship resistance? Or Maybe there is something deeper about having an asset with no counterparty or issuer that people prefer even when there are cheaper alternatives to move dollars on USDT.

I'm not comparing the two to know which one is better. They are clearly different tools but I'm curious why the success of Stablecoins didn't kill BTC economic case.

Stablecoins solve the problem of efficient fiat transfers, while Bitcoin solves the problem of borderless financial sovereignty. Stablecoins do not kill Bitcoin economic case because the two digital assets serve fundamentally different economic functions. Specifically, Stablecoin is a digital payment instrument, while Bitcoin is positioned as an independent, anti-censorship store of value.

The main reason why crypto asset users are more inclined to seek volatile assets like Bitcoin is because Stablecoins like (USDT) or (USDC) are essentially digital claims on US dollars that are centrally managed by issuing companies like Tether or Circle. If at any time the issuer is frozen by the government, or other problems such as going bankrupt and having its license revoked by the regulator, the Stablecoin you hold will also be affected.

Stablecoins are still heavily reliant on fiat monetary policy and anti-censorship policies, which is what differentiates Bitcoin from stablecoins. The Bitcoin network has no central control center. No country, company, or individual can stop transactions, block your wallet address, or confiscate your holdings if they are properly stored. Meanwhile, Stablecoin networks are regulated and subject to blacklisting and wallet addresses holding USDT or USDC can be unilaterally frozen.

[d5000]

Stablecoins solve the problem of efficient fiat transfers,

Not even really that. Stablecoins are still blockchain-based. For a throughput close to popular payment options (PayPal, Visa ...) the costs are much higher than for client-server solutions.

What people don't realize that much is that stablecoins on public blockchains need a base token to work, because only that token can guarantee the incentives for the validators (or miners) to keep the blockchain and consensus safe and repeal attacks.

These tokens are the reason why it feels "costless" to have a stablecoin. But actually the token investors are those who pay the cost: In the long run the validators (who have real operating costs) will create selling pressure and once the initial hype ends, the base token (Ethereum, Solana etc.) will lose value. ETH is already probably in this stage, it has not achieved an ATH since 2021, despite of the ETFs it got 2 years ago.

I can understand where this misconception comes from though. Stablecoins seem much more efficient than e.g. the SWIFT system. But that's because they are monopolists in their system. All payments in the stablecoin system belong to the same bank, you cuoud say. You can't pay a merchant who only accepts USDC with USDT. SWIFT in contrast is a system that works across banks and even currencies ...

[noorman0]

The longer digits stored in a centralized and transparent network are psychologically appealing. There are so many eyes watching it, it's not just about random people trying to take it by force; the issuer is probably at the forefront of the action.
I tried googling the original purpose of stablecoins, and almost all the articles said the general idea was to "protect portfolios from the effects of volatility." So, it wasn't even created as a means of payment.

[yhiaali3]

The success of stablecoins has not eliminated the economic viability of Bitcoin for a simple reason: stablecoins are highly centralized, even more so than fiat currencies, and are subject to direct or indirect government control.

Tether or Circle can easily freeze any amount of USDT or USDC even if it is in your wallet at the request of the government or based on mere suspicions. In practice, you do not own your assets even if they are in your wallet, while Bitcoin is something else entirely because it gives you complete control over your assets.

[davis196]

Stablecoins aren't supposed to compete against Bitcoin. Do you even remember why stablecoins like USDT were created? They were created so that you wouldn't have to directly sell your volatile crypto(BTC or altcoins) for fiat money and therefore take your money out of the crypto exchange. You just sell the volatile crypto for stablecoins and leave the stablecoins inside the crypto exchange(if you want to). Stablecoins added convenience to crypto trading. Stablecoins are competing against digital fiat money, but this competition is pretty much useless, since stablecoins and digital fiat are pretty similar.

[Findingnemo]

Everyone explained about the technology behind stablecoin and others but here is my 2 cents from the average joe's perspective.

Stablecoins such as USDT/USDC exists only because bitcoin exists and these stablecoins are not used as money but for the trading crypto to stable pair instead of crypto to fiat this saves time and give the convenience for the traders and this is how they are having this huge demand.

[bangjoe]

Stablecoins are a representation of the dollar in the crypto space and their purpose is only to facilitate people on the web3 to buy assets, while bitcoin itself is an asset that many are aiming for as an investment, we know most of us are in bitcoin to invest not in a medium of exchange like money today, basically stablecoins today have a large enough capitalization but it is only used as a parking lot for our money not a store of value and investment asset like bitcoin, many people think wrong about that.

Stablecoins will not be able to kill BTC because BTC is the ultimate goal of everyone, look at the time of market price decline, stablecoins always have capitalization growth because people run away from assets that are volatile and when the market is bullish people return to spend it on BTC, in conclusion I think BTC is an investment asset that many people are aiming for while USDT or others are tools to buy it in the market.

[Gozie51]

From my own perspective, stable coin is not a store of value but bitcoin is. I have not observed my usdt increase in value when I hodl it   but rather it gives equivalent of dollar price or value. In other words, in a simple term, it has an unfluctuating value, a digital currency that is pegged with USD currency. However, it still plays the role of cross border financial transaction and transfer just like would have been done using traditional means like going to bank and using the teller system, ATM machine, bank app and maintaining equivalent value anywhere in the world. So it can safely be used to price gold, crude oil, silver, physical assets like houses, land etc.

For traders too, it is convenient and comfortably used for pricing because it lacks fluctuating value which is one greatest advantage bitcoin has as a store of value amongst others like being mutable etc. It can't kill bitcoin even for the simple reason that it is not a store of value but rather pegged with the value of fiat USD.

[AprilioMP]

In theory money have 3 functions. Medium of exchange, unit of account and store of value. Stablecoins have these features but despite BTC volatility, it's the most preferred as store of value.

Is it just because of censorship resistance? Or Maybe there is something deeper about having an asset with no counterparty or issuer that people prefer even when there are cheaper alternatives to move dollars on USDT.

I'm not comparing the two to know which one is better. They are clearly different tools but I'm curious why the success of Stablecoins didn't kill BTC economic case.

Here, if one of the functions of money is to serve as a store of value, then stablecoins like USDT are not money because, in my opinion, that function of storing value is absent there. USDT/USDC merely track the physical dollar. When the physical dollar rises, USDT/USDC rise in tandem. In other words, USDT/USDC are simply the dollar in digital form.

Being censorship-resistant and independent of third parties—since it involves only the sender and recipient—or its decentralized nature sets it apart from both. Its limited supply is another distinguishing factor.

Why don’t stablecoins replace BTC? Because Bitcoin possesses all three functions of money that you’ve mentioned.

[criptoevangelista]

Choosing Bitcoin is simply due to the fact that it's the only currency with absolutely no one in control. Stablecoins run on altcoin networks where funds can be frozen and people can lose access. Bitcoin is what it is precisely because there is no control at all, people simply send and receive money however they want, to anywhere in the world...

[YellowSwap]

Stablecoins are not money since they are not store of value. They are pegged to fiat and since fiat is a currency not money (fiat is not a store of value) the pegged cryptos inherit the same flaw..

Pooya87, why should we say that stable coins aren't money when we can use them to make payment online easily, even more supported than Bitcoin in most case? Is this right? 🤔

Fiat is not money since they are not store of value? How does this goes? Stablecoins are just USD in digital form, even if it's mimicking it still works right?

Gold is definitely a store of value but it's not money, how about this too?
I am just trying to understand better since this whole thing can be confusing at times.

Are all store of value money?

D5000 said they are just like PayPal, but PayPal isn't dollar, PayPal isn't pegged to Dollar, it's just online payments merchant or company, not currency or digital currency.

My brain wants to blow right now.

[Zlantann]

The success of stablecoins has not eliminated the economic viability of Bitcoin for a simple reason: stablecoins are highly centralized, even more so than fiat currencies, and are subject to direct or indirect government control.

Tether or Circle can easily freeze any amount of USDT or USDC even if it is in your wallet at the request of the government or based on mere suspicions. In practice, you do not own your assets even if they are in your wallet, while Bitcoin is something else entirely because it gives you complete control over your assets.

Tether and other issuers of these stablecoins have not undergone a full financial statement audit by recognised or reputable organisations. This makes keeping large funds in USDT or USDC risky. Some people might argue that these firms have strong financial backup and would never suffer future issues. But how are we sure that these coins are completely backed by the dollars and other assets? It is better to use them for transactions because of their low transaction fees and wide acceptance.

Stablecoin will never make Bitcoin obsolete because it cannot serve the purpose of the latter. Both of them will keep existing because stablocin is fiat in blockchain, while Bitcoin represents decentralization and freedom.

[pooya87]

Stablecoins are not money since they are not store of value. They are pegged to fiat and since fiat is a currency not money (fiat is not a store of value) the pegged cryptos inherit the same flaw..

Pooya87, why should we say that stable coins aren't money when we can use them to make payment online easily, even more supported than Bitcoin in most case? Is this right? 🤔

Fiat is not money since they are not store of value? How does this goes? Stablecoins are just USD in digital form, even if it's mimicking it still works right?

Gold is definitely a store of value but it's not money, how about this too?
I am just trying to understand better since this whole thing can be confusing at times.

Are all store of value money?

D5000 said they are just like PayPal, but PayPal isn't dollar, PayPal isn't pegged to Dollar, it's just online payments merchant or company, not currency or digital currency.

My brain wants to blow right now.

I know. It's a bit complicated. It gets even more complicated when you learn that different economists have different definitions for currency and money and they don't see eye-to-eye on them either. And people are just using currency and money interchangeably anyway

But the definition I personally like is the following: currency is a medium of exchange while money is both medium of exchange and store of value.
So by that definition...

• Gold is a store of value but it is not a medium of exchange (you can't buy groceries with it). Therefore it is not money nor a currency. It's more of an investment to keep your purchasing power (that is why it is a store of value).
• Fiat is a medium of exchange but not a store of value (suffers from inflation). Therefore fiat is currency but not money.
• Stablecoins can be used as a medium of exchange but they are not a store of value (they suffer from the same inflation as fiat that they peg to). Therefore stablecoins can be currency but they definitely are not money.
• Bitcoin is a medium of exchange and a store of value. Therefore bitcoin is money.

As I said different economists use different definitions. For example some of them argue that because fiat suffers from inflation, we can call it a poor store of value and still categorize it as money specially since they consider a third characteristic for money: Unit of Account (used to price goods).
The same economists argue that because bitcoin is so volatile, it cannot be considered a good store of value therefore they don't categorize it as money! and call it a "speculative asset" instead.

Hope that clarifies things. 🎓

[mindrust]

They are not filling the same gap that's why. Why hasn't btc killed gold? Why hasn't visa killed mastercard? Why didn't beer kill wine? They are both alcohols. Some people need btc, some other need stable coins. Believe it or not, some even prefer USD over the others. USD, you know, the real thing. Even some shitcoins are still in demand. Somebody somewhere like their shibcoins a lot. Why? Who the fuck knows.

[d5000]

D5000 said they are just like PayPal, but PayPal isn't dollar, PayPal isn't pegged to Dollar, it's just online payments merchant or company, not currency or digital currency.

Why is Paypal "not dollar" for you?

Of course Paypal supports other currencies. But they offer an "account" with "dollars" or whatever fiat currency which you can use to pay. When you pay via PayPal, the dollars are transferred internally in their database, the traditional banking system is not touched (if native payments are used).

This is not different from stablecoins: stablecoins are a payment means that uses a blockchain to transfer the value, circunventing the banking system in a similar way, only with another technology (in contrast to PayPal, you can see the database operations, which are the blockchain transfers).

In the EU for example fiat-based stablecoins are even regulated in a similar way than PayPal-style "e-money wallets", they are called "e-money tokens".

[EL MOHA]

They are not filling the same gap that's why. Why hasn't btc killed gold? Why hasn't visa killed mastercard? Why didn't beer kill wine? They are both alcohols. Some people need btc, some other need stable coins. Believe it or not, some even prefer USD over the others. USD, you know, the real thing. Even some shitcoins are still in demand. Somebody somewhere like their shibcoins a lot. Why? Who the fuck knows.

Seriously it’s a thing of purpose, I think the statement that ‘Bitcoin is an alternative currency’ made by Satoshi is actually the most accurate explanation of this point, it is not that bitcoin will stand in the way of any of this currencies or asset but if a certain set of individuals prefer stable coins simply because they are stable then they are multitude of people who love the volatility that’s associated with bitcoin because it actually helps them to actually invest into the asset and turn the volatility into profit. So bitcoin might look incapacitated in a particular area but would definitely not have its demand killed by something like Stablecoin when bitcoin use case is just too many