Stablecoins May Be the Crypto for You

Have you heard about stablecoins?

They are a type of cryptocurrency whose value is designed to be stable, usually linked one-to-one with a fiat currency like the U.S. dollar or the euro. They combine the power of blockchain technology with the financial stability needed for practical uses of cryptocurrencies.

Stablecoins are meant to eliminate certain risks of transacting with Bitcoin or other crypto, which can change value at any moment. In essence, stablecoin users can buy digitalized assets with digitalized dollars. Unlike other cryptos, stablecoins are not an investment vehicle.

Consumers can buy stablecoins through crypto exchanges but may have to pay transaction fees or charges to convert stablecoins into other assets.

The stablecoin market has matured significantly throughout the world, overtaking Bitcoin as a preferred asset for everyday transactions. Emerging economies, such as those in Latin America and Sub-Saharan Africa, are using stablecoins as a hedge against local monetary instability, largely driven by their low cost for remittances, providing secure savings in regions with volatile currencies and access to decentralized financial services like lending and payments.

Regulators in countries worldwide are focusing on the challenge of creating frameworks that encourage innovation while ensuring consumer protection, financial stability, and compliance with anti-money laundering and counter-terrorism financing.

In the U.S., the Genius Act (Guiding and Establishing National Innovation for U.S. Stablecoins), signed into law this summer, tasks the Treasury Department with “issuing regulations that encourage innovation in payment stablecoins while also providing an appropriately tailored regime to protect consumers, mitigate potential illicit finance risks, and address financial stability risks.”

The stable coin issuer is required to maintain liquid asset reserves in an amount equal to the amount of stablecoins that are issued. The issuer holds the reserves separate from its other assets and can earn interest on the reserves but cannot pay interest to the stablecoin holders.