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*This article is related to the 'The Role of Stable Coin in Decentralized Economy: HTTP of Money’ session at Korea Blockchain Week 2023.
Disclaimer: This article is intended for general information purposes only and does not constitute legal, business, investment, or tax advice. It should not be used as a basis for making any investment decisions or relied upon for accounting, legal, or tax guidance. References to specific assets or securities are for illustrative purposes only and do not represent recommendations or endorsements. The opinions expressed in this article are those of the author and do not necessarily reflect the views of any affiliated institutions, organizations, or individuals. The opinions reflected herein are subject to change without being updated.
Cryptocurrencies are transforming the financial sector by providing a transparent and decentralized trading system. However, the volatility of cryptocurrencies has been a significant barrier to their mainstream adoption. Historically, volatile assets have been viewed as a means of investment or speculation, not as a means of exchange. Stability (not just the stability of the system, but the stability of the value) is essential for mainstream adoption of crypto, and this is where stablecoins come in. Stablecoins should be the foundation of a decentralized financial system, just like HTTP was the foundation protocol of the web.
HTTP and the Internet, or blockchain or Web3 and stablecoins. There are obvious similarities. Both have stability and immutability as their core values, both have an infrastructure nature, and both are necessary for mass adoption. So why are stablecoins specifically an important infrastructure for Web3?
(Stablecoin Dominance vs. Ethereum | Source: Glassnode)
Stablecoins play an important role in the Web3 economy (or blockchain economy, or decentralized economy) by providing a stable and reliable means of exchange. Stablecoins are important because they can be used as a store of value, which is very important because it allows individuals and businesses to transact in cryptocurrencies without having to worry about the extreme price fluctuations that other cryptocurrencies experience. For example, if you get paid in Bitcoin and the price of Bitcoin drops significantly before you can convert it to fiat, you could lose a significant amount of money. However, stablecoins can eliminate this risk by providing a stable value that is less prone to sudden fluctuations. If this is the case, cryptocurrencies can be utilized by entities that have been reluctant to pay and receive payments in cryptocurrencies due to volatility.
Stablecoins can also be used as a means of payment, just like traditional fiat currencies, which means that they can be used to purchase goods and services, pay bills (without the need for separate invoices since they are recorded as on-chain data), and transfer funds between individuals and businesses without the need for intermediaries such as banks and PGs (although, as we will see later, there are no guarantees that this can be done with stablecoins as they are subject to strict regulation).
Stablecoins can be thought of as the HTTP standard of Web3. Just as HTTP is the protocol that powers the internet and enables seamless communication between different devices and networks, stablecoins are very similar in that they provide a standard unit of value that can be used across different blockchain platforms and applications. This interoperability makes stablecoins an attractive option for businesses that want to transact across borders or on different blockchain networks.
In fact, here are the chains that currently issue USDC and USDT, the assets that represent stablecoins:
The reason they can issue assets on multiple chains is because, as mentioned above, they provide a standard unit of value ($1) that can be used on multiple platforms. In this respect, HTTP and stablecoins are similar.
Stablecoins offer a number of benefits to users in the Web3 economy. The benefits of stablecoins include
(USDC Coin Depegged | Source: Bein Crypto)
Stablecoins are an important part of the Web3 economy, providing individuals and businesses with a stable and reliable means of exchange and a store of value. Stablecoins can also be an attractive option for businesses looking to transact across borders or on different blockchain networks, as they allow for seamless transactions without the need for intermediaries. As the use of cryptocurrencies continues to grow, stablecoins will play an increasingly important role in shaping the future of finance, but there are still many challenges to overcome. For stablecoins to become truly stable assets, they need to 1) have clear regulatory guidelines and 2) stabilize their value so that users can consistently rely on them. However, these two aspects are still lacking, which is why they have not yet become a trusted protocol like HTTP.
However, if stablecoins can accomplish these two tasks, we may be able to really start talking about the democratization of blockchain and the Web3 economy.
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Four Pillars is a global crypto research firm based in Seoul, consisting of the most influential blockchain researchers in Korea. Through robust research and governance skills, it helps various market players easily onboard to the blockchain industry by offering high-quality research articles while supporting protocols in their expansion into Korean and global markets.
Writer: Steve Kim, Co-Founder and CEO at Four Pillars
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