Stablecoins have seen their utility climb dramatically in recent months, partially thanks to the explosion of innovation in the decentralized finance (DeFi) industry.
In the last year, the market capitalization and daily trading volume for most major stablecoins have skyrocketed as demand for price-stable crypto assets increased dramatically at this time.
Stablecoins are now used by several million cryptocurrency holders, and account for almost 40% of all cryptocurrency trading volume, while both the number and variety of different stablecoins has grown considerably in recent years – with USD-pegged, BTC-pegged, and a variety of synthetic stablecoins now in common usage.
There are multiple reasons behind the meteoric rise of stablecoins in 2020. Let’s take a look at three of the main ones.
Perfect Escape from Volatility
Though it might seem obvious, stablecoins are designed to experience far less volatility than regular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). This is because they’re pegged to the value of an underlying asset – most commonly the US dollar (USD) or gold – and tend not to deviate too far from the market price of this underlying asset.
This property makes stablecoins the ideal escape from volatility for cryptocurrency traders, allowing them to exit their positions into a price-stable asset as and when necessary to lock in profits or avoid losses.