In the ever-growing crypto asset market, stablecoins are emerging as a significant player, capturing the attention of regulators and investors worldwide.
Although stablecoins have been around since 2014, they represent only a small fraction of the total crypto market. Despite this, their future appears promising, thanks to adoption by major tech platforms and on-going global regulatory reforms addressing associated risks and establishing legal frameworks for their use.
What are stablecoins?
Stablecoins are a cryptocurrency but differ from other popular cryptos which are susceptible to fluctuations in price. As the name suggests, stablecoins aim to provide consumers with stability. They achieve this by pegging their value to tangible assets or fiat currencies — the everyday money we use that’s regulated by central authorities.
”[…] future appears promising, thanks to adoption by major tech platforms and on-going global regulatory reforms addressing associated risks and establishing legal frameworks for their use.
Like other cryptocurrencies, stablecoins are minted on a decentralized blockchain and offer similar benefits such as low-cost transactions and global accessibility. The most common type of stablecoin on the market is fiat-collateralized, followed by crypto-collateralized, algorithmic, and commodity-collateralized stablecoins.
At present, the vast majority of stablecoins (around 98%) are tied to the US dollar. Stablecoins pegged to the euro are beginning to attract attention but the market is still in its early development. However, it is set to experience substantial growth when the Markets in Crypto-Assets Regulation (MiCA) comes into full effect before the end of the year.
Mainstream appeal and real-world applications
The introduction of PayPal’s PYUSD stablecoin in August marked a significant development in the mainstream acceptance of smart payments. While the Ethereum blockchain-backed ERC-20 token has yet to gain widespread adoption, PayPal’s well-known brand is anticipated to boost confidence in the broader cryptocurrency market. This, in turn, is expected to contribute to clearer regulations in the future.
One of the key advantages of stablecoins is their ability to provide protection from crypto market volatility due to their fiat collateralization. Fiat-collateralized stablecoins are typically backed by an equivalent amount of a fiat currency on a 1:1 ratio. This ensures that they maintain a stable value, making them a reliable choice in the face of crypto price fluctuations.
Stablecoins are commonly used for simplifying cryptocurrency trading. This is primarily because transferring stablecoins between crypto wallets is faster and more straightforward than converting crypto to fiat and vice versa. Trading in this manner also allows you to capitalize on opportunities within 24/7 cryptocurrency markets without being constrained by traditional banking hours.
Tether (USDT) and USD Coin (USDC), the oldest and largest stablecoins, dominate the market, accounting for 86% of it. Due to their proven track record, these stablecoins are often favored by merchants for cross-border transactions and B2B payments.
”Our legal and compliance team effectively manages the evolving landscape, with a strong commitment to our clients’ on-going protection.
Navigating the regulatory maze
Similar to other cryptocurrencies, stablecoins carry legal and compliance risks as users must navigate complex regulatory environments. If you want to ensure your business aligns with forthcoming regulations, it’s crucial to understand their impact on your operations.
European Banking Solutions works with a wide variety of industries and users, helping them incorporate cryptocurrencies into their cross-border payments. Our legal and compliance team effectively manages the evolving landscape, with a strong commitment to our clients’ on-going protection.
Discover the security and stability offered by stablecoins like USDT and USDC on our global payments network. They are just a part of our extensive range of digital payment options, which also include popular cryptos such as Bitcoin and Ethereum.
We provide a free and self-custody setup that caters to over 30 currencies with a dedicated crypto-friendly IBAN. With easy access to crypto wallets we ensure same-day settlements in fiat currency without size limits. Our rigorous AML and KYC regulatory compliance standards mitigate financial crime risk, ensuring a consistently secure and dependable environment enhanced by the stability of stablecoins.
In conclusion
Stablecoins are poised for growth, and taking proactive steps now can help you address potential risks while maximizing the advantages they offer.
Contact European Banking Solutions today for expert guidance on navigating upcoming regulatory changes and safeguarding the future your crypto investments.
